Analysing the Impact of Macro Factors on Bitcoin Prices During Bull Markets

Greythorn Asset Management
9 min readJul 10, 2024



Today we examine how key macroeconomic factors — Global Liquidity, interest rates, inflation and FOMC announcements — affect Bitcoin prices during bull market periods. Using historical data from the early 2014 to the present, we use statistical and econometric analyses to identify trends and correlations, offering insights into how these factors influence market behaviour and inform investment strategies.

Data Collection

We collected data from reliable sources:

  • Interest Rates: Federal Reserve Economic Data (FRED).
  • Inflation: Bureau of Labor Statistics (BLS).
  • Market Prices: Historical prices for equities and BTC from financial databases.
  • FOMC Calls/News: Federal Reserve announcements and news archives and the US Treasury press releases.

Global Market Liquidity

Liquidity, the availability of cash and easily tradable assets, is vital for a healthy economy. Increased liquidity boosts asset prices as more money flows into the market, facilitating quick and stable trades. High liquidity periods see rising trading volumes and prices. Understanding these trends helps investors capitalise on market opportunities and make informed decisions to potentially maximise returns.

Liquidity is measured using several metrics, including:

Money Market Funds: These funds usually consist of high-liquidity, short-term securities and are a good indicator of available liquidity in the financial system. They reflect the ability of institutions to meet their short-term obligations.

Source: Federal Reserve Economic Data

Bank Reserves: The reserves held by banks at the central bank also indicate liquidity. Higher reserves mean more liquidity available in the banking system to support lending and investment.

Source: Federal Reserve Economic Data

Liquidity Coverage Ratio: This regulatory standard ensures that financial institutions have enough high-quality liquid assets to cover their total net cash outflows over a 30-day period. It is a key measure of a bank’s liquidity health.

Source: Investopedia

Turnover Ratios: Turnover ratios of stocks and bonds indicate liquidity. Higher turnover ratios suggest a more liquid market, where assets can be quickly bought or sold without significant price changes.

Source: Investopedia

However, one of the main measures we use is the ‘M2’ money supply. M2 includes all the cash people have on hand and in their bank accounts. It covers physical currency, checking accounts, savings accounts, and other near-money assets. Tracking M2 helps us understand the overall liquidity in the economy and see how much money is available for spending and investment.

Historically, spikes in global M2 growth have coincided with Bitcoin bull runs. It’s not just the amount of money in circulation that matters, but the rate of change in the money supply. Bitcoin movements often align with these shifts in M2 momentum. During bull run periods, monitoring M2 becomes even more critical, as increased liquidity often fuels market upswings, making more money available for investment and driving up asset prices.

Source: MacroMicro

Bull markets in the cryptocurrency domain offer significant opportunities for investors. Here are some notable bull runs in crypto history:

Source: Greythorn

As illustrated in the chart below, the global liquidity cycle has shown clear cyclicality.

Source: Global Macro Investor

Historically, as mentioned, there has been a notable correlation between global M2 money supply growth and Bitcoin bull runs.

Source: MacroMicro

First Bull Market (2011–2013)

  • M2 Growth: During the European financial crisis and Cyprus banking crisis, central banks increased liquidity to stabilise economies.
  • Bitcoin Response: As liquidity surged, Bitcoin prices rose dramatically from $2.93 to $329, reflecting increased demand for non-traditional financial assets. However, this surge was primarily driven by Bitcoin’s novelty and small market capitalization, making it more susceptible to significant price movements.

Mainstream Popularity Bull Market (2015–2017)

  • M2 Growth: The aftermath of financial disruptions led to sustained low interest rates and increased money supply.
  • Bitcoin Response: Bitcoin grew from $200 to $19,000, with mainstream media and institutional interest further boosting its demand amidst growing liquidity.

New Digital Age Bull Market (2020–2021)

  • M2 Growth: The COVID-19 pandemic prompted unprecedented monetary easing and stimulus measures, significantly increasing the M2 money supply.
  • Bitcoin Response: Bitcoin prices surged from $10,000 to $64,000 as investors sought alternatives to fiat currencies, driven by fears of inflation and devaluation of traditional money.

Resurgence and Innovation (2024)

  • M2 Growth: Because of the efforts to contain inflation by increasing interest rates post-COVID, overall liquidity has been trending down. A recent uptrend in liquidity since early 2023 has been noted, but it is still modest compared to previous cycles.
  • Bitcoin Response: In 2024, Bitcoin reached new all-time highs, rising from $25,000 to $85,000. This surge occurred even before the next halving event and despite high interest rates. This cycle is unique as it’s the first time Bitcoin has achieved new highs without a preceding significant liquidity surge, indicating an unprecedented maturation of the Bitcoin market.

However, the situation for altcoins is different. As noted by trader Benjamin Cowen, Alts/BTC pairs have been closely tracking estimates of global net liquidity. Most likely, we will need to see an increase in overall liquidity before altcoins enter a growth phase.

Source: TradingView

To take it even further, trader Nik shows that the dominance of BTC, USDT, and USDC inversely reflects the global money velocity. This means when the money supply grows faster than GDP, financialization increases, leading to asset bubbles and lower dominance of BTC. Conversely, if GDP growth outpaces the money supply, financialization decreases, resulting in higher stablecoin and Bitcoin dominance.

Source: TradingView

We recommend analysing macroeconomic policies to gain insights into future liquidity trends. Monitor the global M2 money supply to stay informed about liquidity changes and their impact on asset prices. Additionally, study market sentiment and attention flow to anticipate and position ahead of market shifts.

Interest Rates and Inflation: Insights from FRED Data and FOMC Announcements

Despite its decentralised nature, Bitcoin has shown significant volatility around monetary policy events, reacting to changes in interest rates and economic outlooks. Let’s find out whether Bitcoin’s sensitivity to central bank decisions has evolved as it gained popularity and became more integrated into the financial system.

An interesting study shows that Bitcoin, designed to be independent of monetary policy, actually responds to decisions by the Fed and European Central Banks (ECB), with varying effects over time.

Before 2013, Fed monetary shocks significantly lowered Bitcoin’s price. However, after 2013, these shocks started to increase Bitcoin’s price, indicating a change in how the market perceives Bitcoin. Meanwhile, ECB disinflationary shocks consistently lowered Bitcoin’s price, suggesting Bitcoin behaves as digital gold in response to ECB decisions.

Source: Springer

Central bank information shocks affect Bitcoin differently in the US and EU. Fed positive shocks decrease Bitcoin prices, while ECB positive shocks generally increase them, peaking in early 2018. Initially, Bitcoin was unaffected by these economic outlooks.

The figure below shows that Bitcoin’s price typically adjusts within the first few months following a shock, with similar effects at 6 and 18 months. Since 2016, ECB shocks have had more prolonged effects, with stronger reactions at 18 months compared to the first six months.

This study includes data only up until 2019. However, from 2020 onwards, Bitcoin’s realised volatilities around FOMC announcements began to rise, particularly after the COVID-19 pandemic outbreak in late 2020. Bitcoin prices started reacting almost immediately to Fed tightening, indicating a closer and more immediate correlation with monetary policy decisions, with Bitcoin’s valuation responses being qualitatively similar to those of other risky assets like stocks, foreign exchange, and gold, but quantitatively even stronger.

Even with the latest CPI releases, we have observed a heightened sensitivity of Bitcoin valuations to inflation news in the post-2020 high inflation environment.

In fact, during one of the recent CPI announcements, Bitcoin showed an immediate response. When the headline US inflation for May came in at 0.0% month-on-month, an unexpected result, Bitcoin prices jumped along with most other assets. However, this initial celebration was followed by a correction when the FOMC attempted to dampen liquidity expectations.

Source: TradingView


Bitcoin’s potential as an inflation hedge has attracted significant interest from investors and academics. Originally valued for its scarcity and decentralised nature, Bitcoin was seen by some as a safeguard against inflation. However, empirical studies present mixed results on its effectiveness in this role.

Initially, Bitcoin’s price historically did not respond significantly to monetary policy announcements. Up until 2019, any reaction typically took a few months to manifest.Since 2020, however, Bitcoin prices have started to fall immediately following Fed tightening, indicating a closer and more immediate correlation with monetary policy decisions. This shift underscores Bitcoin’s growing sensitivity to central bank actions.

The evidence suggests a complex and evolving relationship between Bitcoin and inflation, influenced by market maturity and broader economic conditions. However, Bitcoin’s price dynamics are closely tied to global liquidity conditions, driven by central bank policies, investor behaviour, and institutional investment trends.

These findings indicate that Bitcoin’s initial demand was driven by its use as borderless, decentralised digital cash rather than as an inflation hedge, but post-2020, Bitcoin prices have fallen sharply after US monetary tightening, highlighting both speculative motives and a broader investor base and general acceptance.

For the upcoming CPI release on Thursday (11/07/2024), the market anticipates no significant change, according to the forecast, with expectations outlined below.

Note that the Truflation ratio displayed above provides additional insights, which could be relevant if the actual results fall below expectations again.



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