Global liquidity will boost tech stocks and Bitcoin in 2024

Pravatta
5 min readDec 18, 2023

(Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

In the end of 2022 and beginning of 2023 a lot of people were predicting 2023 would be difficult for US stocks, here and here, and a similar pessimistic analysis for cryptocurrencies here, specially for Q1 2023.

Most of the investors were waiting for the the FED to cut rates so US stocks, specially tech stocks like Amazon and Apple could see its stocks prices increasing again, after the 2022 sharp decrease.
Similar scenario for Bitcoin, Ethereum and cryptocurrencies in general.

US interest rate was 4% in december 2022, after the FED started to increase rates in march of the same year from basically 0%.
The Nasdaq Composite Index was down more than 30% in the end of the year, including Microsof and Nvidia with similar declines.
Bitcoin was down more than 60% in the year.

Apparently tech stocks and cryptocurrencies prices only could florish in a zero interest rate scenario.

So if the FED kept increasing rates in 2023 tech stocks and cryptocurrencies price was destined to suffer more, right?

Wrong.

Jerome Powell increased rate many times in 2023 until 5,5%, but Nasdaq Index increased more than 55% and nowit´s close it´s all time high.
Nvidia is up 260% in the year and smashed its all time high many times, Microsoft reached all time high and Bitcoin is up 150% year to date.

What happened to the investors that were predicting the worst?

Why were they all wrong?

Well, simply because liquidity matters more than interest rates.

By liquidity I mean the amount of fiat money like us dollar, euro and chinese renminbi created in the economy orchestrated by their central banks.
Liquidity is represented in this analysis by the M2 aggregate monetary.

When liquidity increases asset prices increase and when liquidity decreases assets tend to decline as well.

But there is also a common misconception that this author used to make and I still see a lot of people making: consider only USD (Unites States Dollar) liquidity to make macroeconomic analysis as a guide to forecast price movements of stocks, commodities and cryptocurrencies.

Why is this a mistake?

Because it´s actually an incomplete information.
According to the IMF, illustrade by the Image1, the USD represents only 59% of the world reserve currencies.

Image 1 — World Reserve Fiat currencies

I used to consider only U.S dollar liquidity in my analysis but it would lead me to wrong analysis for the end of 2022 and 2023 because USD liquidity was basically flat in the period, according to the Image 2.

Image 2 — USD liquidity (M2) from 2019 until 2023

Hopefully, in the end of 2022 I started to consider Global Liquidity in my analysis because Euro, japanese Yen, British pound sterling, chinese renminbi and other countries are also important to have a complete information.

The first person I saw considering global liquidity instead of only USD was Raoul Pal in the end of 2022.

Global liquidity actually bottomed in october 2022, so since november 2022 the Nasdaq started to recover as shown in the Image 3.

Image 3 — The candles represent Nasdaq Composite Index and the blue line is the Global Liquidity

Historical charts like the image 3 show a strong correlation beetwen Tech Stocks (Nasdaq) and global liquidity.

The recovery of Nasdaq started to happen as soon as the liquidity started to rise again in november of 2022.

And what about Bitcoin and cryptocurrencies?

A similar situation happens with the cryptoassets, as shown in the image 4.

Image 4 — The candles represent Bitcoin prices and the blue line is the Global Liquidity

The only difference here is that Bitcoin prices didnt´t start the recovery in november 2022 and it actually crashed in this month.

What happened in november 2022 with crypto?

FTX collapsed and prices crashed.

But only 2 months later in january 2023 Bitcoin price increased 40% during the month, boosted most likely by the increase in global liquidity coming from Asia, specially China.

Cryptocurrencies just like tech stocks are very sensitive to liquidity, not to interest rates.

So what can we expect for 2024?

Tech Stocks and Bitcoin will likely keep growing in 2024 because China is stimulating its economy due to economy slowdown and deflation.
Japan is also stimulating the economy and the US government is increasing its debt like never before (see Image 5) which will probably mean that the FED will end its quantitative tightening program soon and start its quantitative easing program buying government bonds in 2024.

Image 5 — US government debt

For Bitcoin and cryptocurrencies the near future seems even brighter than the tech stocks.

In january 2024 is expected to finally have the approval of many BTC spot ETFs by the SEC for the likes of BlackRock, Fidelity and more about 10 companies in the US, which will potencially bring hundreds of billion dollars in the next years.

Additionally in april 2024 will happen the Bitcoin halving event that will decrease the new Bitcoins created by half and will make Bitcoin an asset more scarce than gold.
Currently the annual inflation of gold and Bitcoin is around 2% but the latter will decrease it to around 1% a year next april.
Historically the year of the Bitcoin halving is the year that Bitcoin surpass previous all time highs.
Bitcoin price today is being trade at around $41000 USD per BTC and the previous all time high was $69000 USD in november 2021.

ETH, the native currency of Ethereum, the largest smartcontracts platform also has a lot of expectation for next year.
In Q1 2023 it´s expected to happen de Dencun Upgrade that will decrease the Ethereum Layer 2 (Arbitrum, Optimism, ZK Sync and many others) fees by 90%, potencially increasing scalability to bring mass adoption for the Ethereum ecossystem.
And finallly many companies like BlackRock also requested to SEC approval for ETH spot ETF as well.

ETH is trading currently at $2200 USD per ETH, still 55% bellow it´s all time high $4800 USD in november 2021.
Historically Bitcoin moves first but a few weeks or months later ETH accelerates and have percentage increases even higher than Bitcoin.

Will 2024 repeat 2020/2021 Bull Run?

Fasten your seat belt, folks.
We may be taking off sooner or later.

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Pravatta

Cripto Analista Estrategista | Engenheiro Eletrônico entusiasta de economia, tecnologia e criptomoedas https://meulink.fit/fFznSKXqLoyJRuj