Key Insights:
Bitcoin could correct to $75 levels after crypto markets see a decline in USD supply.
The supply seems to have a 10-week impact, as tracked by investor Joe Consorti.
According to this theory, Bitcoin may only benefit from the Fed's September rate cut in late December 2024.
After nearly touching $100k a few days ago, Bitcoin has now briefly corrected to $95k. However, it now looks at a far greater risk of a fall.
The global monetary supply of US Dollars, denoted by the sign "M2," has plunged from $108 trillion to $104.7 trillion, a drop of 3.1%. According to Joe Consorti's data, this drop was in correlation with the drop in the current crypto markets.
Bitcoin investor Joe Consorti shows this relation between BTC and USD supply in his tweet. The supply crunch was delayed for 10 weeks, which affected Bitcoin's price. This means that the current supply crunch will only lift in late December 2024, when the September rate cuts begin to show an impact. However, traditional beliefs suggest a one-year impact period.
According to Consorti, if this fall in M2 lingers, Bitcoin risks a fall to $75k levels, a correction of 20% to 25%.
The US Federal Reserve turned its interest rate to zero in 2020 after COVID-19 to ensure that there was little impact on the economy. This sudden reduction helped the crypto markets rise to new highs in 2021 but also caused inflation to cross 10% in the US.
After this, the US Fed began aggressively cutting interest rates starting March 2022, when the rate was around 0.25%. It soon reached 4.5% by the end of the year, causing a great price crunch for crypto and financial markets. High interest rates caused a global crunch because several central banks kept the US Dollar as a global reserve currency.
These interest rates peaked around September 2023 and stayed at the same level until September 2024, when the Fed cut the interest rate by 0.5% for the first time since 2020. This and other factors have caused an intense rally in the crypto markets.
The fall in crypto markets caused by the US Dollar's monetary supply also had other impacts on the global economy.
A reduced supply could potentially cause global trade networks to decline as US Dollar is used as a primary currency in global trade.
It can also cause a decline in exports in economies like Japan, the EU, and China, which could face an economic decline as exports make up a bulk of their GDP.These economies and the USA, UAE, UK, and India have been key drivers of crypto markets.
Though the supply crunch might eventually fade out in a few weeks, it will take some time. Generally, there is a one-year delay between the change in interest rates and its impact on the markets.
This indicates that the current market rally could be entirely based on optimism and hope for a better regulatory environment under Trump but is less likely to have been caused by interest rate decline.
The rate cut of 0.5% in Sep and 0.25% in Nov this year could bear results in the next year i.e., 2025.
Due to the current state of bullishness, the crypto markets could sustain a minor liquidity crunch. Further, the entry of Bitcoin whales like MicroStrategy has lifted the markets as well.
However, it would be difficult to hold the markets beyond a certain point, and we may see a correction to $90k in the next few weeks unless new money enters the market.
The correction could turn into a crash if short-term BTC holders and ETFs begin to sell, as most of them have bought Bitcoin for the first time. Such a scenario could cause Bitcoin to correct to $75k levels, below which any further price fall is currently difficult.
The short supply of USD may also delay the alt season, which could have arrived in early 2025. Due to their speculative nature, most altcoins depend on high market liquidity.
The markets have matured a lot since the last bull season, but it would be interesting to see how crypto behaves and if investors give it the same patience as they have given stocks and bonds.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.