Gustavo Faria2023-07-24

A Macro View on Liquidity and On-chain Transactions

Despite the substantial rise of BTC in 2023, with the price surging from $17k to $30k range, on-chain transaction volume has remained considerably low since the end of 2022. This is apparent through the NVT Golden Cross, which has operated several times near, or even above, the 2.2 band. This reading suggests that the market cap is highly valued in comparison to the ability to transact coins in terms of volume. Moreover, the spot trading volume has also been significantly low since the start of 2023, reinforcing the narrative of low liquidity in the market. This contraction in liquidity occurs in a macroeconomic scenario of the shrinking M2 monetary aggregate of the world's main economies, where we have observed the greatest contraction recorded in recent years. This contraction is the result of a restrictive monetary policy by the world's major central banks, aiming to slow down economic activity to contain inflation. With this evidence, a correlation is observed between the contraction of global M2 and the low volume of on-chain BTC transactions. In this context, the recovery of liquidity is a key element for a potential increase in the transacted volume and, consequently, for a larger and healthier price movement. It's possible that macro events in the coming months, like the FOMC meeting this Wednesday (07/26), may have even greater relevance on market behavior.