Cryptocurrency analyst Jamie Coutts has shared his views on Bitcoin’s recent all-time highs (ATH), warning investors about the sustainability of the current rally.
Coutts remains bullish on Bitcoin’s long-term potential, while noting the challenges posed by the deteriorating liquidity environment.
“Bitcoin reached new ATHs amid worsening liquidity,” the analyst said, adding that this could limit the duration of the rally.
Coutts explained that Bitcoin’s performance is highly sensitive to liquidity conditions, as measured by the Bitcoin Macro Sentiment Indicator (MSI). He said the model has proven effective in predicting critical market reversals, including the start of a bear market in January 2022 and the bottom in December 2022.
Currently, the MSI indicator has entered a bearish crossover since mid-October, signaling that investors should be careful. “The macro and liquidity charts are unequivocally showing continued bearish momentum for most metrics,” Coutts said. “This is not a moment of panic; this is a warning. Bitcoin is the lowest yielding in these environments.”
He also noted that Bitcoin tends to perform best when liquidity conditions are favorable. “BTC can rally when conditions are adverse, but the best returns are achieved when these factors are bullish,” he added.
Coutts outlined two potential scenarios for Bitcoin’s short-term trajectory:
- Deteriorating Liquidity Conditions: If the liquidity environment continues to deteriorate, the current rally may only continue for a limited period of time.
- Easing Liquidity Conditions: If central banks start providing liquidity, a pullback may occur followed by a new rally.
Coutts noted that the Fed is aware of tight liquidity conditions and has discussed measures to ease them in recent meetings. He also cited the views of macro analyst Raoul Pal, who pointed out that Bitcoin tends to lag global liquidity by several months.
“Based on this, Bitcoin could go up a bit more before reaching a cap,” the analyst said, hinting at the possibility of a short-term pullback before the next rally.
*This is not investment advice.