Always bear in mind the pivotal role that global market liquidity plays in cryptocurrency valuations. While fundamentals are crucial, it's the day-to-day liquidity dynamics that shape crypto pricing, given the market's relatively small size. Should liquidity experience a significant contraction, expect a negative impact on crypto prices.
While the previous discussion is theoretical, the potential threats outlined below are very real. You might have noticed the increasing geopolitical frictions. Several additional elements could severely impact liquidity, pushing cryptocurrencies downward.
Amidst geopolitical risks, the banking world is experiencing unusual shifts. China's curbed stimulus measures contrast with the Western central banks' trends of lowering rates. Despite these efforts, nothing seems effective. Cryptos, no matter how promising, are fundamentally tied to these macroeconomic shifts.
Trumped?
The McDonald looks like a lock as a potential candidate in the looming US presidential election . A pro-crypto stance characterizes him, yet his election could inadvertently affect market liquidity negatively. It's well known that Trump is not favored by many within the US political circles.
So what happens when McTrumper wins?
Bedlam!
The Trump campaign for 2024 has already faced at least two assassination plots, with his team now requesting additional anti-missile security measures for his aircraft. Should Trump assume the presidency, widespread civil discord seems inevitable. His potential assassination could trigger what resembles a civil conflict.
The anticipated market reaction would likely be negative, potentially derailing the US economy's current trajectory.
The Harris ticket isn't exactly promising for cryptocurrencies, even if it doesn’t trigger a catastrophic scenario initially. The same political factions that backed Biden are now supporting Harris, and Biden's track record hasn't exactly been kind to decentralized currencies.
Middle East Madness!
Conflict stretches across the Middle East involving Iran, Israel, Iraq, Yemen, and Lebanon — just to name a few.
And let's not overlook the involvement of the US, Russia, and Turkey, each having a seat at the grand table of international politics.
The situation in the Middle East appears grim and is worsening. Among the nations involved are three nuclear powers and several significant oil producers. Additionally, threats to oil infrastructures add another layer of complexity to the situation.
Avoiding overly apocalyptic descriptions, it’s fair to say that increased tensions in the Middle East could severely impact market liquidity, a scenario which might not bode well for crypto valuations—and that's aside from the devastating human impact.
Another repercussion of escalated Middle Eastern conflict could be disruptions in shipping routes (as seen in Yemen) and reductions in oil production (from Iran/Iraq), presenting a precarious scenario for a struggling global economy dependent on oil.
Interestingly, despite the brewing tension, oil prices aren't spiking. This suggests an abundance in global oil supplies preventing price surges during dire times.
Bitcoin Goes Macro
Bitcoin ETFs tie the cryptocurrency directly to major economic shifts. Presently, significant macroeconomic challenges generally translate to lower Bitcoin prices. If you're not already considering macroeconomic perspectives, now is the crucial time to start!
Current macroeconomic trends paint a bleak picture. While central banks pursue rate cuts, long-term bond yields are climbing. This somewhat contradictory dynamic complicates a cohesive global economic narrative. weirdness doesn’t stop there.
Financial institutions are stockpiling cash, a possible indication that they doubt rate reductions will stimulate the global economy sufficiently. The resultant scarcity of available cash equates to an unintentional tightening of monetary conditions, potentially fueling a self-perpetuating cycle.
But wait – there’s more!
Despite the likelihood of widespread conflict in the Middle East, oil prices are declining, contrary to expectations. This suggests that factors like a weakening global economy influenced by cash-hoarding banks and a dysfunctional bond market might be responsible. Saudis Bitcoin's evolution into a macro asset highly sensitive to liquidity trends signals potential turmoil in the absence of adequate market liquidity. While this isn't welcome news, it underscores the fragility of the global economy.
As we reach the midpoint of the final quarter of 2024, the state of the world is at best perplexing. Although short-term stock market trends suggest optimistic outlooks, medium-term predictions regarding market liquidity are notably uncertain.
The Q4 Question
Despite continuous discourse in the financial media about central banks cutting rates, such measures may not sufficiently address the underlying complexities of the global economy. With the FED persisting in rate cut strategies, yet with climbing rates, the global economy remains adrift, affecting billions worldwide.
Gold is achieving unprecedented highs in USD terms almost daily. This situation might suggest we've encountered stagflation, signaling an economic condition few are equipped to handle, diverging significantly from familiar economic models of recent decades.
Bitcoin is on an upward trajectory; however, the question remains as to the price level at which this rally will initiate. Although leading cryptocurrencies have rebounded from previous lows, only Bitcoin has come close to reclaiming its former peaks.
BTC Blastoff, Sooner or Later
If you have an understanding of the unusual macroeconomic landscape we're navigating, you'll appreciate the looming possibility of significant liquidity downturns. Imagine 2008-like markets compounded by a seemingly ineffective FED.
In the event of market disruption, cryptocurrency prices could plummet. If dire conditions persist, Bitcoin might seek stability around the $20,000 mark, driven not by inherent value declines but by impulsive sell-offs.
Bitcoin at $20,000 would represent a considerable purchasing opportunity. Keep this in mind, even if circumstances seem overwhelmingly dire.
As 2025 approaches, several key drivers are already influencing the crypto market landscape. Central banks appear to be losing touch with the realities of a deteriorating macroeconomic environment.
Here Comes 2025
Insidious elements like war and political turmoil could suddenly rupture global financial markets. The 2024 US Presidential election evokes unprecedented intensity, with both political factions adopting increasingly radical positions.
The crypto market, still relatively small with an approximated total market cap of $2.4 trillion USD, is highly exposed to liquidity volatility. This figure could multiply fourfold or shrink by 70% depending on the unfolding events in 2025.
The threat of a severe liquidity shortage is genuine. Strategic hedging is strongly advised.
Nicholas Say is a native of Ann Arbor, Michigan. Having traveled extensively and spent many years living in Uruguay, Nicholas currently resides in the Far East. His work is distributed across the web, focusing on realistic development and advances in human technology.
