Liquidity Fuels Bitcoin Price Swings as Traditional Finance Flows In

Bitcoin's price is often influenced by narratives such as digital scarcity and decentralization. However, its performance in the short and medium term also depends on global liquidity.

Liquidity refers to the amount of money and easily usable instruments present in the financial system. One indicator of this is M2, which includes money in circulation, deposits, and other forms of liquidity.

The relationship between Bitcoin's price and global liquidity is not automatic. If liquidity increases because investors are seeking new opportunities, Bitcoin tends to perform well. However, if liquidity increases for defensive reasons, such as banking stress or systemic risks, capital may not immediately flow into Bitcoin.