Quick Take
Bitcoin remains the primary indicator of global liquidity, with its price movements often preceding those of other risk-on assets. This dynamic was evident in the recent market cycle, as Bitcoin hit an all-time high on March 13, coinciding with the biggest ETF inflow since launch on March 12, over $1 billion, and the bottoming of the US Dollar Index (DXY), which typically has an inverse correlation with risk-on assets.
Since then, the DXY has strengthened from 102 to 105, exerting downward pressure on Bitcoin, dropping roughly 20%. Subsequently, the most liquid risk-on assets, such as the Nasdaq and S&P 500, peaked after Bitcoin, followed by gold. This sequence reinforces Bitcoin’s role as a leading liquidity barometer.
Bitcoin’s current correlation with US equities, represented by the S&P 500 and Nasdaq, currently stands at around 0.7 over the past 30-day moving average, indicating a strong tie to risk-on assets. Conversely, its correlation with gold has dropped to one of the lowest levels this year at -0.33.
With the upcoming release of US CPI inflation data on May 15, a hot inflation print could potentially dampen Bitcoin’s price, as it might delay or eliminate the possibility of interest rate cuts in 2024.
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