Time For Bitcoin As A Macro Asset

Bitcoin Consolidation

Last week, bitcoin was relatively flat compared to equities and gold. While that was positive from an equity perspective (equities continued their downward trajectory), it was disappointing that bitcoin wasn’t following the upward trajectory of gold.

In our 31 March post “Bitcoin Has One Eye On Global Liquidity” we noted:

“Price historically tracks the M2 money supply but lags by around three months. If that correlation remains intact, then investors should anticipate upward momentum in the price on or around 6 May.”

While confident in the probability of upward momentum, we did expect that the increased uncertainty in global markets since that post would pull that upward momentum forward.

Commodity First

In “normal” times, the price more often mirrors the performance of a risk-on asset. However, in times of crisis, we would expect it to decouple from that narrative and behave like a commodity. It is, after all, a commodity first and a risk-on asset second.

In a less globalised world, with inflation fears and a declining dollar, we would expect it to be more closely correlated to the performance of gold.

Bitcoin traditionally front-runs gold in periods of economic uncertainty. However, it is currently lagging behind gold.

That may be partly explained by the significant gold purchases made by China, which has reduced U.S. Treasury holdings and increased its gold holdings significantly in the last couple of weeks. Gold now accounts for 6% of China’s reserve assets.

Global Liquidity

That said, global liquidity has improved, with Japan being the latest to stimulate its money supply yesterday. On-chain data and liquidity trends suggest that bitcoin is in a consolidation phase, not a peak.

The correlation to the M2 money supply, coupled with the flight to safety evident in gold’s performance, should act as a tailwind.

If bitcoin can catch that tailwind and the correlation to gold is now in play, then statistically, there will be positive returns for it in the next 30 to 60 days.