Markets
Bitcoin and Ethereum prices could rise thanks to central bank liquidity injections, says macro analyst
May 29, 2024 11:11 am | 2 minute read
Bitcoin investor Preston Pysh and macro researcher Luca Gromen recently explored how central bank maneuvers to manage liquidity are influencing the financial and cryptocurrency markets.
What happened: In a discussion entitled “Q2 macroeconomic outlook,” Pysh and Gromen highlighted a significant problem: Long-term Treasuries are in a bubble, fueled by retail and banks flooding into it “over the last 3-5 years,” according to Gromen.
He pointed to this as a classic bubble signal. They also explored how current liquidity injections are not labeled quantitative easing (QE), but have similar effects. Gromen argued that these measures could weaken the dollar, spur economic growth and limit Treasury yields.
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Because matter: These points have substantial implications for cryptocurrency investors:
- Inflation and liquidity management:
While the Fed hasn’t labeled it QE, it is actually injecting liquidity into the economy. “This is not QE, but the markets react in a similar way,” Gromen stressed. Liquidity increases assets, including Bitcoin (CRYPTO: Bitcoin) AND Ethereum (CRYPTO: ET), as investors seek returns in investments that are less sensitive to inflation. - Dollar weakness:
Gromen highlighted the recent weakening trend of the dollar. “We’ve seen the DXY index drop about 2.4% since April,” she said. A weaker dollar often encourages investors to look to alternative assets like cryptocurrencies for better returns. - Political and economic strategies:
The podcast discussed how political and financial institutions are addressing the high supply of Treasury securities. Gromen stressed: “They won’t let yields go above 5%.” This strategy involves continuous liquidity support, which can drive cryptocurrency prices higher. - Future liquidity injections:
Experts discussed possible future steps, including Freddie Mac’s proposal to guarantee second mortgages, potentially injecting significant liquidity into the consumer market. “This could inject up to $1.8 trillion in liquidity,” Gromen noted, pointing to further boosts for assets like cryptocurrencies.
For cryptocurrency investors, the key takeaway is that persistent liquidity injections and a weakening dollar could create a favorable environment for cryptocurrencies.
What’s next: The influence of Bitcoin as an institutional asset class it is expected to be explored in depth at Benzinga’s next event The future of digital assets event on November 19th.
Read next: Dogecoin could move to $0.322 if it clears this key resistance level, the analyst notes
This content was partially produced with the help of artificial intelligence tools and was reviewed and published by Benzinga editors.
Image created using artificial intelligence with Midjourney.
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