Transcription
When we get to Bitcoin, the narrow measure has been the better measure with a 45-day lead and you know, we can try and map it up now and it would suggest that Bitcoin does okay, but nothing amazing yet until that narrow liquidity starts really rising. So, it's what's been holding it back.
The market feels like it's standing in the eye of a storm. Bitcoin is holding firm around $65,200 despite geopolitical tensions, oil pushing above $90, treasury yields climbing to multi-month highs and a Federal Reserve meeting that could reshape expectations for the rest of the year. After months of sluggish price action and a brutal collapse from the October 2025 highs near $126,000, Bitcoin's refusal to break down is suddenly catching everyone's attention. What's making this move even more interesting is what is happening beneath the surface. Spot Bitcoin ETF have now recorded seven consecutive days of inflows worth nearly $1 billion. Ethereum and Solana are quietly outperforming and economic data continues to paint a picture of resilience. Inflation has been easing, PMI readings remain above 53 and many analysts are once again talking about the possibility of a powerful second leg higher for crypto markets. But while optimism is returning, one of Bitcoin's biggest bulls is urging investors not to get carried away just yet. Raoul Pal believes the most important force driving every major asset class liquidity is still not where it needs to be. According to his latest analysis, Bitcoin may ultimately head much higher, but the fuel required for a true explosive breakout has yet to arrive. And the charts he presents suggest the market may have to remain patient a little longer before the next major wave of liquidity enters the system. Today, we'll break down why Pal believes liquidity explains nearly 87% of Bitcoin's price movements, why the banking system's appetite for Treasury bonds could determine the next phase of the bull market, why Bitcoin may still be trading below fair value, and how a massive global race for AI dominance could ultimately unleash another flood of capital into financial markets. If you enjoy deep macro analysis that goes beyond the headlines, make sure to like the video, subscribe to the channel, turn on post notifications, and let me know in the comments, do you think Bitcoin's next major rally begins before or after the Federal Reserve starts easing financial conditions?
Markets are are Bayesian as opposed to you know, strict sets of rules. They shift and the factors change. But, liquidity is the dominant driver of Bitcoin and explains, over time, about 87% of Bitcoin's movements. The Nasdaq and total liquidity is even tighter. It's a 97.5% right now. I think the lead is about 115 days. It suggests we've got some strength to come. We'll wait and see. Again, look at the the spreads between the black line and the red line. They're not perfect. They're not supposed to be perfect. This is not a crystal ball. This is contextualization and understanding of what markets should be doing. But, it suggests that we should see further strength in the Nasdaq because of liquidity, and then it probably slows down as liquidity slows down. So, that gives you some understanding there. Let's now drop into US liquidity. The US is the big driver of assets because the US is the world's reserve currency. Something like 85% of all world trade is in dollars. It's the currency that everybody wants to save in. It's the currency of business. It's the currency of the world, so it matters the most. So, US broad liquidity, this is the one with a full banking sector loans and leases, well, that's been going up quite sharply. Let's zoom out, get the bigger picture. In fact, let's hit it to all time, and it just does one thing. The US loves debt. The US loves the printing of money, the creation of new money. It's the thing that drives that system. Year-on-year, however, it's still strong-ish at about 3 and 1/2% but not super strong. We've seen in the past liquidity rise and again, I can go back in this fabulous dashboard that I built myself. Um you can see that if we go back further periods of time, it goes back and we've seen it over above 10%, and I would expect liquidity to keep increasing because of the debt we've got, but it's been mild, which is why, for example, crypto's been mild this time around because there's not a massive amount of liquidity around. There is liquidity, so everything's going up. I mean, Bitcoin still outperformed the Nasdaq since the low in liquidity, which was back in 2022. But it's not been strong enough to deal with the amount of focus and attention on AI. So, technology, generally in the last couple of years, has done better because of liquidity itself. The US narrow liquidity, well, this one is the measure of of just the treasuries that the banks hold plus the Treasury General Account and the Fed balance sheet. This has been growing and starting to accelerate. We had a big fall off the cliff, and that was to do with um the government shutdown, and we're starting to recover these levels. Year-on-year, growth is slow, right? So, they're not really creating money, and the reason being is the yield curve isn't particularly steep, and that holds back the banks from buying more treasuries. So, one of Walsh's key missions is to steepen the yield curve. Once they steepen the yield curve, the banks tend to take more risk and we'll see this measure increasing. Why does this measure matter so much? I'll come on to that in a sec. The other measure, simple measure of liquidity, is USM2. USM2 is improving. If we go back, we can still see that it's it's still low compared to previous cycle peaks. So, we should expect USM2 to keep increasing over time to fund the interest payments. Now, US broad liquidity does a really bloody good job with the Nasdaq. Maybe it's not as good as global liquidity, but it does a very good job and explains most of the price action. And that's with a 120-day lead. When we get to Bitcoin, the narrow measure has been the better measure with a 45-day lead. And, you know, we can try and map it up now and it would suggest that Bitcoin does okay, but nothing amazing yet until um narrow liquidity starts really rising. So, it's what's been holding it back.
Interestingly, Powell isn't the only liquidity expert urging caution right now. Michael Howell, founder and CEO of CrossBorder Capital and one of the pioneers of modern global liquidity analysis, has recently highlighted a similar concern. According to Howell's latest liquidity models, global central bank liquidity appears to have peaked earlier this year and has been trending lower in recent months. His firm's daily flash liquidity index has fallen sharply since March, indicating that the pace of liquidity expansion is slowing rather than accelerating. Even more striking was Howell's recent warning on social media. He suggested that if the current cycle continues to resemble the 2021 to 2022 period, markets could still face another 9 to 12 months of difficult conditions. In a separate post, he noted that global liquidity easing likely peaked at the end of February. In other words, while liquidity remains positive overall, the acceleration investors were hoping for simply hasn't materialized yet. That doesn't necessarily mean a bear market is coming. It simply reinforces Powell's central argument, liquidity is still expanding, but not at the speed required to produce the type of parabolic moves many investors are expecting. The difference between positive liquidity and rapidly accelerating liquidity can mean the difference between a healthy bull market and an outright mania. And that brings us back to the heart of Powell's thesis, why banks, Treasury markets, and the shape of the yield curve may determine when that next acceleration finally arrives.
Bitcoin is trading at a discount to where liquidity is. It could play catch up and then continue with this, or it could continue to mirror the pattern and sort of readjust itself at these lower levels. We'll have to wait and see. But over time, Bitcoin should go higher cuz global liquidity's going higher, US broad liquidity's going higher, and US narrow liquidity should go higher as soon as they can get the yield curve to steepen. We can see the um bank securities. So, this is the the the Treasuries that the banks hold. This is what's in the narrow money part. And this is where the government can stiff the banking system with the bonds, right? And they need them to do that. They need a lot of bonds being bought, and you can't just rely on the foreign central banks and sovereign wealth funds. You need domestic buyers, and the banking system has been out of action so long after 2008 because of the regulations like Basel III that came in place. And what they're doing now is trying to free those up cuz they want this to accelerate. They want the banks to hold more Treasuries and then to increase their lending. Why do they want to increase their lending? Because somehow you've got to lend for this massive CapEx boom, the biggest uh CapEx spend in all of history. So, these are big times and the game is intelligence, the most valuable prize the world has ever seen. You see, he who owns the most intelligence owns the world. And that's a race between China and America that can never be won, the great race. And so, there will be endless amounts of money spent and governments will finance this if need be because if one country is allowed to win the intelligence race, they basically control the world and that can't be allowed to happen. So, everything is being now moved around, the funding of this intelligence and the funding of the government and what the game is is that the economic singularity kicks in, the AI and the robots and productivity accelerate and debt to GDP falls. But, what we can see is we can see after the deleveraging in 2022 as we had inflation, we're back at pretty much all-time highs now with the amount of treasuries the banks hold. Year-on-year, however, again, it's kind of growing like everything else. It's about 5% 4%, not that exciting. And 6-month on 6-month doing the same. If Walsh and Besant want to goose markets returns and people's pockets into the midterm elections, they're going to have to drive up these measures of liquidity because if not, we keep getting the Y-shaped economy because most of this liquidity doesn't flow into regular lending or regular activity. The rates are too damn high for mortgages for people to afford and the prices are too damn high, too. This stuff needs to get fixed and Scott Besant is working hard on doing it because without it, this whole game doesn't work. The other measure that I like to use as part of the everything code is excess liquidity. This is liquidity growth in excess of GDP. And if you think about it, it's liquidity that spills into the system for speculation and investment. And what we find is again correlated with Bitcoin. We've got excess liquidity turning up and Bitcoin should be following it, too. Again, nothing's supposed to be perfect, but contextually, I'm laying out a picture for you where Bitcoin and crypto is undervalued versus most of the liquidity measures, but it's influenced by them is very clear. So, when we look at excess liquidity, both at the broad measure and the narrow measure, they're both just about positive. And they haven't really been positive for a while now. And we need this to be more positive over time. When we go back to see all-time history, we've tended to have extended periods where it's much higher, and we need that. We need excess liquidity to drive other assets to flow into the generalized economy. If not, we keep creating the K-shaped economy. And then we're On top of the K-shaped economy, we're debasing the currency, so those wage earners, the average person, gets cuz they don't earn enough assets. And assets are the only thing that go up, so the rich get richer and the poor get poorer. And this game, you know, is highly political now. You can see it's spilling into the UK, all across Europe, into the US. This is politics right now. It's all based on these problems. Debasing the currency drives up asset prices. The average person doesn't get a look-in. House prices are too high, mortgage rates are too high, so they're just left on the sidelines. And it's not fair. How do you answer it? Well, we've got to grow our way out of it. We've also got to allow some leverage back into the system, some lending back to people, so people can buy houses, etc. Try and get the rates down, hoping that the productivity boom from AI starts lowering inflation over time and allowing rates to come lower.
If there's one message investors should take away from Raoul Pal's latest presentation, it's that liquidity remains the master variable. Headlines come and go. Political developments create short-term volatility. Regulatory delays generate uncertainty. But over longer periods, the amount of money flowing through the global financial system continues to exert an enormous influence on asset prices. The encouraging part of Pal's analysis is that most of the major liquidity trends are still pointing upward. Global liquidity is rising. US broad liquidity is rising. M2 money supply is improving. Bitcoin itself appears to be trading below where several liquidity models suggest it should be. None of these factors point toward a structural breakdown. Instead, they suggest a market waiting for a stronger catalyst. That catalyst, according to Pal, may ultimately come from the banking system. If policy makers succeed in steepening the yield curve and encouraging banks to hold more Treasuries while expanding lending activity, the narrow liquidity measures most closely correlated with Bitcoin could begin accelerating again. And if that happens while governments continue financing massive AI infrastructure projects and technological investment, the next phase of the liquidity cycle could be far more powerful than what we've experienced so far. The big question now is whether Bitcoin's recent resilience is the beginning of that next move or simply a preview of what's still to come once liquidity truly starts accelerating. Either way, the macro backdrop is becoming impossible to ignore. If you enjoyed this analysis, make sure to smash the like button, subscribe to the channel, and turn on post notifications so you never miss our latest Bitcoin and macro updates. Also, share this video with anyone trying to understand what is really driving the markets right now. And most importantly, let me know your thoughts in the comments below. Is Raoul Pal right to remain cautious? Or do you think Bitcoin is already preparing for its next major breakout? Thanks for watching, and I'll see you in the next one.