"Bitcoin now responds more to liquidity than to rate cuts. While rate cuts once drove crypto rallies, Bitcoin's recent price action reflects actual cash availability and risk capital in the system, not just borrowing costs. Interest rates and liquidity are not the same. Rates measure the price of money, while liquidity reflects the amount of money circulating. Bitcoin reacts more when liquidity tightens or loosens, even if rates move in the opposite direction."
"When liquidity is abundant, leverage and risk-taking expand, pushing Bitcoin higher. When liquidity contracts, leverage can unwind quickly, which has often coincided with sharp sell-offs across stocks and commodities. Balance sheets and cash flows matter more than policy headlines. The Fed's balance sheet policy, Treasury cash management and money market tools directly shape liquidity and often influence Bitcoin more than small changes in policy rates."
Bitcoin's price dynamics have shifted from sensitivity to anticipated Fed rate cuts toward sensitivity to actual liquidity conditions. Interest rates measure the price of money, while liquidity measures the quantity and flow of money available for markets. Abundant liquidity fuels leverage and risk-taking, lifting Bitcoin and other risk assets; liquidity tightening prompts rapid unwind of leverage and synchronized sell-offs across crypto, equities and commodities. Central bank balance sheet actions, Treasury cash management and money market operations directly shape liquidity and therefore have greater influence on Bitcoin than small policy-rate moves. Traders should monitor cash flows and reserve levels rather than solely focusing on rate-cut expectations.
Read at Cointelegraph
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