After a week of fluctuating tariff friction, the market finally had a chance to catch its breath over the weekend, but how long this respite can last remains uncertain, as tariff issues are event-driven emergencies that lead to risk aversion and temporary emotional collapse, resulting in significant volatility.
However, once the market confirms the fundamental changes brought by tariffs and releases risk aversion sentiment, the entire financial market will find a new balance. This is why global stock markets, especially US stocks, ended the week with a rise last Friday, which can be seen from the changes in the S&P 500 volatility index.
It can be seen that the VIX index reached a recent high last week, comparable only to the extreme event of the Bank of Japan's interest rate hike last year and the financial turmoil caused by the pandemic in 2020, which explains the significant market volatility over the past week, as it is historically rare.
After this massive volatility subsides, the focus on the Crypto market's trend will return to the familiar topics of "inflation" and "interest rate cuts", because only rate cuts can bring a "flood of liquidity" and offer growth hope for risk assets led by BTC.
By comparing the global broad money supply (M2) and BTC's trend over the past 10 years, we can analyze this correlation. The chart clearly shows that BTC's massive growth over the past decade is built on the basis of a global M2 surge, and this correlation trend far exceeds other financial data.
This is why BTC always fluctuates when the US is about to publish data related to inflation or interest rate cuts, as it ultimately affects the potential for new funds to enter the Crypto field.
However, most of the Crypto market currently focuses solely on the Federal Reserve's interest rate cut path while overlooking another noteworthy data point - PBOC asset scale, which reflects the current liquidity of our country's currency.
While everyone is focusing on the West Coast financial market, they are precisely ignoring our own financial liquidity, which is actually closely related to BTC's rise and fall, given that we are a major country.
The chart shows the changes in BTC's growth over three cycles and the PBOC asset scale growth, revealing a correlation that almost spans every BTC surge, coinciding with the 4-year cycle.
The PBOC's liquidity played a role in the 2020-2021 Crypto bull market, the 2022 bear market, the recovery from the cycle's low point in 2022-2023, the surge before the BTC ETF approval in Q4 2023, and the pullback in Q2-Q3 2024.
Similarly, just before the 2024 US election, the PBOC's liquidity turned positive, bringing a "election bull" wave.
However, the chart shows that the PBOC's scale began to decline after September 2024 and bottomed out by the end of 2024, currently rising to its highest point in the past year. From a data correlation perspective, changes in PBOC liquidity typically precede significant BTC and Crypto market fluctuations.
Interestingly, during the 2017 BTC bull market, the Federal Reserve was not the one "releasing water" but raised interest rates 3 times that year and implemented quantitative tightening. Yet, risk assets led by BTC still performed optimistically because the PBOC scale reached a new high that year.
Even the S&P 500's growth shows some correlation with PBOC liquidity. Historically, the PBOC's total asset scale has a correlation coefficient of about 0.32 with the S&P 500 (based on 2015-2024 data).
Of course, to some extent, this is because the PBOC's quarterly monetary policy report and the Federal Reserve's interest rate meeting have overlapping time windows, which amplifies the correlation in the short term.
In summary, we can discover that in addition to closely monitoring the US liquidity situation, we also need to pay attention to domestic financial data changes. A week ago, news already revealed that "monetary policy tools such as reserve ratio cuts and interest rate cuts have ample room for adjustment and can be implemented at any time" - our task is to track these changes.
It's worth noting that as of January 2025, our country's total deposit amount is $42.3 trillion, while the US deposit amount is about $17.93 trillion. We cannot help but say that from a deposit scale perspective, we have more financial possibilities, and if liquidity improves, we might see some changes.
Of course, another point to discuss is whether funds will flow into the crypto market if liquidity is available, given existing restrictions. However, Hong Kong has already provided an answer, and the policy flexibility and convenience are quite different from a few years ago.
Finally, borrowing a quote from Ray Dalio to end this week's commentary: "When the wind comes, even pigs can fly." Riding the momentum is better than struggling against the current. What we need to do besides waiting is to dare to climb up and soar when the wind rises.
