As a researcher with years of experience in financial markets, I have seen my fair share of bull and bear runs, euphoria, and fear. Reading Jamie Coutts’ analysis on Bitcoin’s liquidity conditions left me feeling a mix of intrigue and caution.
According to recent analyses, the value of Bitcoin (BTC) may be under pressure due to worsening global liquidity conditions that could negatively impact cryptocurrencies and other high-risk assets. In simpler terms, this means that Bitcoin might face challenges as economic factors become less favorable for digital currencies like it.
On December 6th, Jamie Coutts, the chief cryptocurrency analyst at investment company Real Vision, shared unfavorable updates about Bitcoin that left its supporters disappointed in a discussion on X.
Lagging BTC price faces new liquidity showdown
It’s possible that Bitcoin will see more growth during this bull market, however, the next three months might signal a short-term pause or cooling down in its upward trend.
According to Coutts’ Bitcoin MSI macro model, the current liquidity conditions might indicate that discomfort or trouble could follow next.
“Bitcoin has hit new ATHs in the face of a deteriorating liquidity backdrop,” he summarized.
“1. If conditions worsen, the rally, while euphoric, can only last for a limited time. 2. If conditions ease from here, then a pullback is warranted, but then off we go again.”
In the course of my exploration, I encountered an extraordinary instance of intraday volatility within the BTC/USD market. This volatile period led to the printing of what is colloquially known as a “Darth Maul” candle, a rapid reversal candle that erased hundreds of millions of dollars from both long and short positions in a matter of seconds, following a sudden $10,000 correction.
Coutts clarified that the model he used enabled him to predict, or “forecast,” both the beginning and ending points of the previous Bitcoin bear market in 2022.
He warned, along with the liquidity data, that the dashboard indicating both high-level trends (macro) and liquidity showed clear and persistent downward pressure (bearish momentum) in most of its measures.
“This is not a panic moment; it’s a warning. In these environments, $BTC posts its poorest returns.”
Looking ahead, there might be a challenging period for trading over the next two to three months, as predicted by Coutts, since they note that Bitcoin tends to follow liquidity fluctuations by approximately two months.
During mid-October, this MSI signal shifted to a bearish stance, but following Donald Trump’s election victory, a robust surge occurred as expected.
“Similarly, the model last went bearish in Feb but the ETF launch and flows kept BTC buoyant for another month. However, a persistent bearish liquidity backdrop eventually caught up (it was also a highly leveraged rally that needed time to clear).”
Bitcoin bulls need weaker dollar
An additional consideration comes in the form of US dollar strength.
Last month, the U.S. Dollar Index (DXY) reached its peak levels since November 2022 – an event that Coutts views as potentially misleading, anticipating it might not be sustained.
He noted that this situation supports his assumption that conditions will become less restrictive leading up to the first quarter of 2025.
“However, if it retakes that pivot high then we would likely see a very sharp pullback across all assets. It is not my base case, but it is something to be hyper-aware of.”
As I write this on December 6th, based on data from CryptoMoon Markets Pro and TradingView, the value of BTC/USD was hovering around $98,000.
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2024-12-06 12:37