When Bitcoin’s price surges, a big question arises in the community: “Where is the money coming from?” It’s important to answer this question to determine the sustainability and the extent of Bitcoin’s price increase.
Currently, Bitcoin has made a strong breakout above $30,000 and is trading around $34,000, returning to the high price range of 2023, thanks to positive news about Bitcoin ETFs.
Amid the astonishing performance of Bitcoin in late October, the perennial question arises again: “Where is the money coming from?” Here are some analyses of Bitcoin’s correlation to find the source of the money. The People’s Bank of China (PBoC) is the central bank of China, with the authority to control monetary policy and manage the country’s financial institutions. PBoC holds more financial assets than any financial institution in world history.
Therefore, decisions to inject money by PBoC are likely to have a certain ripple effect on investment assets. In recent history, from 2020 to the present, Bitcoin has experienced four significant price increases. Notably, there is an interesting correlation between these price increases and PBoC’s liquidity injections, as shown in the chart below.
However, this comparison doesn’t necessarily mean that every time PBoC injects liquidity, BTC will create new highs. Nevertheless, it suggests that a portion of the money contributes to the upward momentum of risk assets like Bitcoin. Especially in October 2023, PBoC poured a whopping $39.6 billion into the system. This is considered the most significant medium-term liquidity injection since 2020. Once again, the price of BTC rose in parallel with this abundant liquidity injection. It’s worth noting that the cryptocurrency market has had a strong correlation with DXY (US Dollar Index) and equities. The Federal Reserve’s monetary policies also significantly influence market volatility.
However, the current price surge is primarily stimulated by funds from Asia rather than the West. Interestingly, the current influx of funds bears a resemblance to early 2023 when the U.S. government made efforts to rescue banks from bankruptcy.
Specifically, in March 2023, the Fed injected $300 billion in liquidity to rescue banks from the brink of collapse. Currently, PBoC has lowered interest rates to reduce borrowing costs and is pumping money into the lending market in an effort to rescue liquidity for banks amid a severe crisis in the real estate sector.
According to Bloomberg, PBoC injected more than $100 billion into the lending market the previous week, which coincided with BTC surpassing $30,000. It seems that the correlation between BTC and DXY is a viewpoint that is losing ground due to the larger influence of PBoC.