Bitcoin experienced a significant 15% correction in the third week of December, marking its largest weekly price drop since August. Experts attribute this decline to global macroeconomic factors and warn that further downside may be possible if these pressures intensify. However, Bitcoin also has internal factors that could counterbalance the negative impact of the macroeconomic trends.
One of the key factors affecting Bitcoin’s price is global liquidity, particularly Global M2, which measures the total supply of money in the global economy. Over the past two months, Global M2 has fallen by $4.1 trillion, indicating potential further declines in Bitcoin prices if this trend continues. Historically, Bitcoin’s price has shown a 10-week lagged correlation with Global Money Supply, suggesting that Bitcoin prices could drop as much as $20,000 over the next few weeks.
Joe Consorti, Head of Growth at Bitcoin custody firm Theya, had warned of a potential 20%-25% Bitcoin correction based on similar indicators a month ago. Now, this forecast seems to be materializing. André Dragosch, Head of Research at Bitwise, also anticipates that Bitcoin will continue to face pressure due to tightening liquidity in the United States. However, he points out that Bitcoin’s growing illiquid supply could potentially support its price under supply-demand dynamics, indicating increased scarcity of the cryptocurrency.
At present, Bitcoin is trading around $94,000, having dropped nearly 6% over the weekend. While challenges from macroeconomic factors may persist, there is hope that bullish on-chain factors will ultimately outweigh the bearish macro factors. This could create some volatility in the market, potentially leading to attractive buying opportunities in the future. It is essential for investors to remain aware of these factors and conduct independent verification before making any investment decisions based on this information.
In conclusion, Bitcoin’s recent price correction highlights the interplay between global economic factors and internal supply dynamics within the cryptocurrency market. While challenges from declining global liquidity may continue to pose threats to Bitcoin’s price, the growing illiquid supply of Bitcoin could offer some support under supply-demand dynamics. Understanding these factors and their potential impact on Bitcoin’s price can help investors make informed decisions in a rapidly evolving market.
