- Analysts consider Bitcoin a liquidity sponge, absorbing excess money supply in times of crisis.
- The current global liquidity pressure has a significant negative impact on the bitcoin price due to its illiquid supply of 77.15%.
- Bitcoin price could drop to $13,000 over the next month — before bouncing back to the $29,000 target, analysts say.
The price of Bitcoin is strongly influenced by liquidity conditions – one of the most important factors in any market. The global liquidity crunch has affected the price of Bitcoin significantly, and as a result, analysts are giving a bearish forecast for BTC.
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How has the global liquidity contraction affected the price of Bitcoin
Sam Rule, Senior Crypto Market Analyst at Bitcoin Magazine, says that liquidity is one of the most important factors in any market. Liquidity can be defined in many different ways, but the analyst looks at global liquidity and its impact on the price of bitcoin.
One high-level view of liquidity is based on the state of the balance sheets of central banks around the world. During recent crises, central banks have become the primary channels of liquidity for the economy by keeping interest rates low and by purchasing sovereign debt, mortgage-backed securities, and other financial instruments. The rule says that this influx of liquidity has occurred, however, from the purchase of assets of a more risky nature in general. This has led to one of the biggest rises in asset valuations globally, over the past 12 years, since the Great Financial Crisis.
The balance sheets of central banks in the United States, China, Japan, and the European Union reached $31 trillion in 2022, nearly ten times their level in 2003. While this is an increasing trend over the past two decades, fiscal and monetary policies for 2020 are in response to The COVID-19 pandemic has taken balance sheets to record levels.
Total Assets of Major Central Banks and Bitcoin
The rule indicates that a new all-time high for bitcoin reached $60,000 in March 2021, coinciding with an annual peak in the rate of change in the major central bank’s asset accumulation.
But since then, central banks have reversed their previous expansionary monetary policies to fight rising inflation, and now instead of pumping liquidity into the economy they are pulling it off. The implication is that this policy reversal has been a major driving force behind the BTC price decline over the past year, as well as volatility across all markets.
Will Bitcoin reach $13,000 or $29,000 first?
NekozTek, a crypto analyst and trader, notes that active Bitcoin sales by miners stopped about a month ago. Bitcoin selling by miners increases selling pressure on the asset and negatively affects the price of BTC. Mining reserves have decreased continuously since the beginning of August 2022 and October 13 indicates an increase in reserves. The analyst is bullish on Bitcoin and expects the price to rise over the next few months.
Bitcoin miner reserves against the price of the US dollar
Crypto analyst and trader Aditya Roy compared the 2018 bear market to the ongoing Bitcoin cycle and predicted that BTC could drop in November, reaching the $13,000 level.
Roy has identified a support level around $18,000 formed by the multiple troughs that the price has touched since June 2022. This level, if broken, is likely to see a choppy move south. According to the technical analyst, the number of touches the level is exposed to increases the volatility of the final break when it comes, indicating the risk of an explosive move south if the support area is at $18,000.
BTC-USD price chart
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