Most analysts are blaming a lack of liquidity for Bitcoin’s dire performance, but there is more to it than just that.
Bitcoin’s 50% decline from all-time highs in just four months comes at a time when global liquidity has increased, which counters the common premise that the price follows liquidity.
“The divergence is striking, and it demands explanation,” said Chris Tipper, chief economist and strategist at the Ainslie Group. Global liquidity has climbed around $5 trillion since Bitcoin’s peak in October and is now almost $190 trillion, according to Ainslie Wealth.
However, this is being driven by the People’s Bank of China, which added $1 trillion in 2025 and likely another trillion this year, said Tipper.
Chinese liquidity doesn’t flow into Bitcoin (which is banned), it flows into gold reserves, domestic infrastructure, and the real economy, he added.
“So when you strip out the Chinese contribution and look only at the Western liquidity that Bitcoin actually responds to, momentum peaked in October and has been decelerating since.”
Gold markets reacted to this and reached all-time highs in late January, with the precious metal trading just 5% down from that peak today. Bitcoin responded to the Western component and corrected.
“Two assets, same headline liquidity number, opposite performance, entirely explained by the bifurcation.”
The economist concluded that when Western liquidity momentum re-accelerates, whether from a Federal Reserve response to market stress, dollar weakness, or a “disorderly event that forces intervention,” Bitcoin has significant ground to recover.
The US Dollar Index (DXY), as a “rough proxy for Western liquidity, seems to support your argument,” commented Abra CEO and Algorand chairman, Bill Barhydt.
The DXY has recovered in recent days following the escalation of military strikes in Iran. From a low of 97.5 in late February, it climbed to 99.6 on Tuesday as the dollar strengthened, according to TradingView. A stronger dollar is also bad news for Bitcoin markets.
At the same time, Bitcoin tanked below $67,000 again in late trading on Tuesday but managed to recover to $68,500 by Wednesday morning in Asia.
The asset has seen heavy resistance at $70,000 and is unlikely to break above it until Western liquidity improves through Fed rate cuts or more money printing.
