Trust Me Bro – Liquidity Will Erase Your Losses, or NOT?

Institutional Crypto Research Written by Experts

Author

Markus Thielen
March 12, 2025

👇1-16) The stakes are higher than ever. Savvy traders have been aggressively selling altcoins and shifting capital into Bitcoin, initially helping to stabilize its price and driving Bitcoin dominance back above 60% (see our January 14, 2025, report: ‘Are Smart Traders Hedging Bitcoin with Altcoin Shorts?’). However, over the past month, Bitcoin has also begun to decline, indicating a more profound shift in market dynamics beyond simple capital rotation.

👇2-16) Many have overlooked the impact of hedge fund basis trade unwinding, which has been a key factor in Bitcoin’s recent weakness (see our February 24, 2025, report: ‘Bitcoin & MicroStrategy: The New Favorite Assets for Hedge Funds’). As traders search for an explanation, many have turned their focus back to global money supply, attributing Bitcoin’s decline to a drop in liquidity—a narrative that, while convenient, may not fully capture the bigger picture.

👇3-16) While this data point offers a convenient narrative, our macro-quant analysis suggests it may be a false hope—an oversimplification of Bitcoin’s liquidity drivers. There is no consistent linear relationship between liquidity and Bitcoin, and contrary to popular belief, a different key driver is influencing price movements. Instead of focusing solely on the global money supply, traders should monitor a different, more precise liquidity metric to understand the fundamental forces at play.

Does Bitcoin really follow liquidity? It’s not so simple…

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