As Bitcoin (BTC) nears the $70,000 mark, the cryptocurrency community is abuzz with predictions for a potential surge to $100,000, accompanied by a significant altcoin season. Amid this fervor, cryptocurrency analyst Axel Bitblaze noticed provided that X analysis, checking whether the necessary liquidity and catalysts exist to push Bitcoin to such heights.

Bitblaze highlights the fundamental role of liquidity in the cryptocurrency market. Comparing previous bull runs, he notes: “Our space is completely driven by only one thing, which is liquidity.” It refers to the bull markets of 2016 and 2020, which were largely driven by increasing liquidity. The question this time is whether there will be similar or larger liquidity events on the horizon that will cause Bitcoin’s price to rise.

#1 Bitcoin’s value growth will be driven by stablecoins

The cornerstone of Bitblaze’s analysis is the current state of the stablecoin market. He describes stablecoins as a “gateway to the crypto industry,” emphasizing their necessity in the crypto ecosystem. The total stablecoin market capitalization rose to $173 billion, reaching its highest level since the collapse of TerraUSD (UST).

Tether (USDT) remains the dominant player, accounting for 69% of the total stablecoin market capitalization and $120 billion. Bitblaze highlights the historical correlation between BTC prices and USDT market cap, stating: “From March 2020 to November 2021, USDT MCap increased 17x while BTC price increased 16.5x.”

However, as of March 2024, despite the continuous raise in USDT market capitalization, the price of Bitcoin has remained relatively stable. “This means there is a large amount of liquidity waiting on the sidelines to enter BTC and cryptocurrencies. I think they will start implementing soon, right?” – says the analyst.

#2 FASB Policy Change

Another critical factor is the upcoming change in accounting standards by the Financial Accounting Standards Board (FASB). Currently, publicly traded companies face challenges in storing Bitcoin due to unfavorable accounting treatment.

Bitblaze explains: “Let’s say a company bought 100 BTC at $67,000 each. If BTC falls to $60,000 and then rises to $68,000, the company will still have to report it at $60,000… they will have to report it as a loss even though it is making a profit. This results in misleading earnings reports and adversely affects stock prices, discouraging companies from investing in Bitcoin despite its potential as an asset.

An upcoming FASB rule change, scheduled to be implemented in December 2024, is expected to address this issue. Under the novel guidelines, companies will be able to report the fair value of their Bitcoin holdings based on market prices at the end of the reporting period. Bitblaze suggests that this regulatory change could encourage more corporations to adopt Bitcoin as part of their balance sheets.

He cites MicroStrategy as a precedent, noting that since August 2020, the company has accumulated 252,220 BTC worth $17.4 billion, currently realizing a profit of $7.4 billion. Given that S&P 500 companies collectively hold approximately $2.5 trillion in cash and cash equivalents – inflation-prone assets – Bitcoin presents itself as an attractive, inflation-resistant alternative.

#3 Increasing the M2 money supply

Bitblaze also delves into the macroeconomic landscape, specifically the M2 money supply, which includes cash, checkable deposits, and other easily convertible money-like assets. Currently, the M2 money supply is $94 trillion, which is almost 39 times larger than the total cryptocurrency market capitalization.

Bitblaze refers to analysis indicating that “for every 10% increase in the M2 money supply, BTC pumps 90%.” Despite the M2 money supply being about 3% above its previous peak, Bitcoin has yet to break above its 2021 highs, suggesting that sufficient liquidity remains untapped.

“Currently, the M2 money supply is almost 3% above its recent peak, while BTC is still below its 2021 high. In the face of global interest rate cuts and QE, fiat will become a worse investment. As Ray Dalio said: #Cash is garbage# and now this gigantic money supply will find its way into various asset classes, including cryptocurrencies; says the analyst.

#4 Switching from money market funds to Bitcoin

As of November 2021, the value of money market funds rose to $6.5 trillion as investors sought the safety of Treasury bills amid rising interest rates. However, as the Federal Reserve initiates interest rate cuts and signals more interest rate cuts, Treasury bill yields are expected to decline, likely resulting in significant outflows from money market funds.

Bitblaze predicts that “this will result in massive outflows from money market funds as Treasury bill yields decline,” suggesting that investors will seek higher yields in riskier assets such as Bitcoin and other cryptocurrencies. He calls these digital assets the “fastest horses” in the QE environment, predicting that this shift could funnel significant capital into cryptocurrency markets.

To quantify potential inflows, Bitblaze aggregates available sources of liquidity: the $94 trillion M2 money supply, the $6.5 trillion total money market funds, the $2.5 trillion cash holdings of S&P 500 companies, and the stablecoin market cap amounting to USD 173 billion. This brings the total to approximately $103.17 trillion, which is 43 times the current total cryptocurrency market capitalization.

He then turns to the skeptics and concludes: “For the $200 billion inflow, only 0.19% of that account had to go into cryptocurrencies. For those who think this is not possible and $200 billion is too much, BTC ETFs have seen net inflows of over $20 billion despite sideways price movements, no interest rate cuts, and no QE.

At the time of publication, the price of BTC was $66,944.

Featured image created with DALL.E, chart from TradingView.com