Not only the Federal Reserve, but the asset scale of the Central Bank of China (PBOC) is also influencing the future trend of Bitcoin?

As a week of volatility comes to an end and markets breathe, the real key may lie in the pulse of U.S.-China capital flows. (Synopsis: Trump said: Semiconductor tariffs will be released within a week!) Bitcoin lost 85,000, U.S. stocks gave up) (Background supplement: JPMorgan CEO warned: U.S. bonds "sooner or later" Fed or repeat the 2020 bailout script! Will Bitcoin benefit from the rise? After a week of ups and downs in tariff friction, the market finally had some respite over the weekend, but how long this respite can last is uncertain, because the tariff issue is an eventual contingency that leads to a risk aversion of funds and a brief collapse of sentiment, so volatility will also be very large. However, once the market confirms the fundamental changes and risk aversion brought about by the tariffs, the entire financial market can find a new balance from it, which is why global stock markets, especially U.S. stocks, ended a week of volatility with a close of gains on Friday, as we can see from the change in the volatility index of the S&P 500. It can be seen that the VIX index hit a recent high last week, and what can be "comparable" in the past few years is not only the extreme event pin of the Bank of Japan's interest rate hike last year, and then the financial turmoil caused by the epidemic in 2020, which is why the market has fluctuated so much in the past week, after all, history is rare. Then, when this huge fluctuation comes to an end, what affects the trend of the Crypto market must return to the old "inflation" and "interest rate cut", because only interest rate cuts can usher in a "flood of gold" and bring hope for growth for risk assets led by BTC. We can analyze this correlation by comparing the trend of the global broad money supply (M2) and BTC in the past 10 years, and the figure below can intuitively see that the huge increase in BTC in the past 10 years is based on the global M2 surge, and this correlation trend far exceeds other financial data. This is why whenever Lao Mei wants to release information related to inflation or interest rate cuts, BTC will always fluctuate, because it ultimately affects whether new funds can enter the Crypto space. But at present, most people in the crypto market seem to focus only on the US Federal Reserve's interest rate cut path, ignoring another noteworthy data - PBOC asset size, that is, the asset size of the People's Bank of China, which reflects the current liquidity of the Chinese currency. When everyone is paying attention to the financial markets on the west coast, they are ignoring China's financial liquidity, which is in fact closely related to the rise and fall of BTC. The following figure is the change chart of BTC's growth in the past 3 cycles and the growth of PBOC asset scale, and it can be seen that this correlation fluctuation runs through almost every BTC rally, and it also corresponds to the cycle once every 4 years. PBOC liquidity played a role in the Crypto bull market in 2020-2021, the bear market in 2022, the recovery from cycle lows in 2022-early 2023, the surge in the fourth quarter of 2023 (before the approval of the BTC ETF), and the callback in Q2-Q3 2024. Also a few months before the 2024 US election, PBOC liquidity turned positive again, bringing just a wave of "electoral cattle". However, in the chart below, we can see that the size of POBC began to decline after September 2024, bottomed out at the end of 2024, and is now rising to the highs of the past year. In terms of data correlation, changes in PBOC liquidity usually precede large fluctuations in the BTC and Crypto markets. Interestingly, in the BTC bull market in 2017, the US Federal Reserve was not the one that "released water", but raised interest rates 3 times throughout the year, and there was quantitative tightening, but risk assets led by BTC were still very optimistic in 2017, because PBOC scale hit a new high that year. Even in terms of the rise of the S&P 500, there is a correlation with the liquidity of the PBOC. Historically, the annual correlation coefficient between PBOC total asset size and the S&P 500 is about 0.32 (based on 2015-2024 data). Of course, in a sense, it is also because the PBOC quarterly monetary policy report overlaps with the time window of the US Federal Reserve's interest rate meeting, so the correlation will be amplified in the short term. To sum up, we can find that in addition to paying close attention to the water release of Laomei, we also need to pay attention to changes in China's financial information. A week ago, the news was released: "Monetary policy tools such as RRR cuts and interest rate cuts have sufficient room for adjustment and can be introduced at any time", and what we need to do is to track this change. It is worth noting that from the perspective of asset scale, as of January 2025, China's total deposits are 42.3 trillion US dollars, while the total deposit of Laomei is about 17.93 trillion US dollars. Of course, another point that needs to be explored is whether the liquidity of funds can flow into the crypto market, after all, there are still some restrictions, but Hong Kong has given the answer, in terms of policy tightness and convenience, it is different from a few years ago. Finally, to borrow a phrase from Rebs to end this week's commentary, "When the wind comes, pigs will fly", it is better to ride the momentum than to sail against the water, all we have to do is wait, that is, dare to pick up the steps when the wind rises, and fly to the wind. 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