Global Liquidity and Cryptocurrencies

Analysing Cryptocurrency Data Using AI Systems

Latest data confirm that Global Liquidity remains a key driver of cryptocurrency market conditions. When liquidity expands, risk positioning typically increases as crypto assets benefit from easier financial conditions, stronger capital flows and higher speculative demand. Conversely, tighter liquidity can reduce crypto price momentum, increase volatility and pressure valuations across digital assets.

Admittedly, Global Liquidity in US dollar terms is currently slowing and its underlying growth cycle has already peaked (end-Q3 2025). This helps to explain the poor performance of cryptocurrencies through 2026. The encouraging news is that Global Liquidity embeds a large cyclical element, i.e. what falls is certain to later rebound. The less good news is that this turn may still be several months away. Nonetheless, perspective is crucial in investment, and we argue in this report that few other assets offer the same ability to hedge against future monetary inflation (i.e. devaluation of paper money) as cryptocurrencies.

The chart below plots the weekly performance of a basket of three crypto units (orange line) — BES$: Bitcoin 60%, Ethereum 30% and Solana 10% — against Global Liquidity (black line). Both series are expressed as six-week log changes away from their long-term trends. The six-week window is used to dampen short-term noise. Global Liquidity is advanced by three months, or 13 weeks, to test whether liquidity conditions tend to lead crypto performance.

The scatter plot of recent data highlights the closeness of this relationship. The estimated loading on the Global Liquidity data is nearly eleven times: a 1% change in Global Liquidity is associated with an 11% change in the BES$ basket in the same direction. The R-squared exceeds 32%, implying that almost one third of the variation in the crypto basket can be linked directly to changes in Global Liquidity.

We emphasise Global Liquidity as the key metric to monitor. Global Liquidity measures the flow of funds through World financial markets. It consists of both Central Bank and private sector provision. Within the global aggregate, we can split out specific contributions from, say, the US Federal Reserve. The Fed is important, but many commentators believe that it is the dominant driver of Global Liquidity. This is not the case. What’s more, using just Fed Liquidity, i.e. the net injections of funds into US money markets, is a far less accurate predictor of future crypto prices as the following chart and low R-squared (0.02) notes.

We also passed the data through AI models to test how neutral analytical systems would interpret the relationship between crypto prices and changing liquidity conditions. Their conclusions are, of course, conditional on the data, model design and prompts used. However, we did not suggest a priori that any relationship existed, nor did we steer the models towards the conclusion that the liquidity impact was positive and potentially highly elastic. Equally, had the AI findings been disappointingly negative, we would probably not have published this report!

The core conclusion is straightforward: cryptocurrencies appear to be among the most liquidity-sensitive assets in global markets. If Global Liquidity is set to expand, crypto should be viewed less as an isolated technology trade and more as a high-beta expression of general monetary conditions. That makes liquidity indicators central to both investment timing and risk management.

Key Findings From AI Analytics

• Global Liquidity appears to lead market direction. Changes in Global Liquidity conditions tend to precede shifts in cryptocurrency prices, suggesting that liquidity is predictive

• Crypto behaves as a high-beta liquidity asset. Bitcoin and broader digital assets generally react more strongly than traditional assets to changes in liquidity conditions

• Turning points matter more than absolute levels of liquidity. The pace and direction of liquidity growth appear more important for crypto performance than the level of liquidity alone

• Macro-finance policy remains the key transmission channel. Central bank balance sheets, credit growth, collateral volatility, fiscal deficits and US dollar liquidity all affect the investment environment for crypto assets

• Overall message is that cryptocurrency markets should be analysed through a Global Liquidity lens. Crypto performance is not driven solely by adoption, technology and regulation; it is also highly sensitive to the availability and direction of capital. Monitoring liquidity indicators can therefore improve the timing and interpretation of crypto market cycles

A Deeper Dive

Let’s dig more deeply into the AI findings. The high sensitivity of crypto assets to Global Liquidity is worth exploring further. The following chart, which is not AI-generated, compares the liquidity-beta factors, or regression loadings, of various investment assets to Global Liquidity. The full data sample spans 2015-26 using weekly data. The full-sample loading is shown as a red bar, while an alternative calculation over a shorter 18-month window is plotted alongside in orange.

Crypto assets consistently have by far the greatest sensitivity to Global Liquidity both across time and across a range of other asset classes. Precious metals (e.g. gold and silver) score highly, but their sensitivity is barely one quarter of that demonstrated by the range of crypto assets. Stocks, eg. SPX, NASDAQ, and the yield curve slope (YC) are positively related to Global Liquidity, and bond yields (e.g. R2, R10) are negatively related. Yet, the unmistakeable conclusion is that if future monetary inflation poses a threat, then holding a small amount of crypto may be the best way to hedge.

The consistency or robustness of the relationship between crypto and Global Liquidity is traced out in the rolling regression chart for the crypto basket (BES$). This computes a rolling 60-week regression loading. The long-term average is 6.4 times over the full sample, shown here weekly from 2017. Lately it has trended higher. Without question, when Global Liquidity is itself expanding and when this sensitivity coefficient is rising, then crypto can perform spectacularly.

The same liquidity-beta factor is plotted in the next chart for Bitcoin (BTC$) alone. This demonstrates even greater stability around a higher long-run average of 9.5 times. The BTC$ loading is not constant but it does appear to ‘mean revert’ around this long run level. In other words, periods of below average sensitivity ultimately give way to offsetting periods of greater sensitivity.

A similar liquidity-beta chart can be plotted for the Ripple XRP$ crypto unit. This averages out at a similar loading to Bitcoin. Yet, the parameter is more volatile. This could be explained by the protracted, but recently resolved, legal tussle between Ripple and the US SEC.

Nonetheless, the XRP$ token is, like Bitcoin, Ethereum and Solana, also closely related to short-term movements in Global Liquidity. Evidence the following chart which plots 6-week log changes in XRP$ against the same change in Global Liquidity, but with liquidity advanced by 3 months (13 weeks).

Investment Implications

When Global Liquidity improves, cryptocurrencies are supported by stronger capital inflows and renewed investor appetite for ‘scarce’, non-sovereign assets. Bitcoin is likely to remain the primary beneficiary because of its depth, institutional adoption and role as the benchmark crypto asset. However, broader crypto assets, especially those with real World applications, e.g. Ethereum, XRP, may still outperform during later phases of a liquidity upswing and when risk appetite broadens.

Nonetheless, finance never moves in straight lines: there are caveats. High leverage and speculative positioning among crypto investors often amplify both upside and downside moves. Crypto is a highly volatile asset class. Equally, adverse regulatory developments remain a source of asset-specific risk. Consider China’s outright banning of crypto investment.

We emphasise the impact of Global Liquidity. This has both trend and cycle, but cycles rarely respect trends. Hence, a renewed tightening in dollar liquidity could weaken crypto momentum and unexpected central bank policy shifts can quickly alter the liquidity outlook.

The overriding conclusion is that crypto assets appear to be the standout hedges against future monetary inflation. We noted how their sensitivities are some four times greater than traditional hedges like precious metals, and may be as much as six times greater than equities. Therefore, holding as little as 5% of an investment portfolio in crypto assets could make a significant difference to future investment performance if you fear monetary inflation.

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