Don't Trip

• WLD (Crypto Fox): Our short hit entry at 1.8394 and ran down to 0.9636 for a 47.61% unleveraged move to the downside.

• OKLO (Donny): Bought the dip at ~$32, with the stock down 25% following Deepseek news. Stock last closed at ~$47 (~50% unlevered return in a week).

Welcome to our new segment. In this section, I, Pidgeon, Master of Coin and Trader Extraordinaire, will share everything from understanding how the financial system works and impacts our coins to ways to optimize your money in crypto and other topics relating to making, managing, and keeping your money.

In this first episode, we’ll discuss ‘Global Liquidity,’ the most important macro factor in markets.

What is Global Liquidity?

Global Liquidity is a concept coined by Michael Howell.

We can create a ‘global liquidity’ model by tracking the money flow from central and commercial Banks, Private institutions, global capital flows, and general market liquidity conditions.

It is simply a measure of how much money is in the global financial system.

The most important players in this equation tend to be the U.S. Federal Reserve (FED) and the People’s Bank of China.

In the next episode, we’ll explore the FED’s activities in more depth and examine how they affect global liquidity.

The Effects of Global Liquidity

The idea is simple: When global liquidity increases, asset prices do, too. Similarly, when global liquidity decreases, asset prices do, too.

A great example of this could be seen in the previous cycle. The world economy was grinding to a halt off the back of the pandemic, as a result every major economy started pumping money into the system to stimulate their economy, pumping up global liquidity.

What followed was the 2021 bull run, which pumped up every asset and coin under the sun. Then, come November 2021, the FED said “enough” and started Quantitative Tightening, effectively removing piles of money from the system and lowering global liquidity.

That change in the FED’s policy marked the exact top for Crypto. We then saw a massive bear market in assets as liquidity conditions tightened as countries started to fight inflation.

Then something changed in early 2023. The FED and the US Government started bailing out failed banks, effectively pumping liquidity back into the system. This marked the start of our current bull run.

Global liquidity tends to move in cycles, aligning pretty well with Bitcoin’s halving cycle. So, Bitcoin’s cut in supply emissions comes just as the world economy is being stimulated again.

This cycle has been under quite mediocre global liquidity conditions. However, introducing the BTC Spot ETF has brought tremendous capital into the ecosystem that couldn’t be accessed before, which is a proxy for liquidity.

How to use Global Liquidity

Looking at global liquidity trends can help us better prepare for macro moves. Currently, the FED funds rate is being cut, which is a major support for global liquidity.

The Fed will likely need to resume quantitative easing (QE) in the coming years to avoid further economic hardship.

QE is where they stimulate the economy through various means, such as purchasing assets like bonds and increasing economic activity. This will inevitably increase global liquidity conditions, which will pump our precious coins.

When you hear ‘Quantitative Easing,’ just think about a money printer going ‘Brrrrrrrr.’

This can also help you determine whether a piece of news is actually relevant or just noise.

Relevant news might read: “BTC Spot ETF Approved.” This approval allows billions of new dollars to enter the cryptosystem, increasing liquidity and prices.

Irrelevant news might include the following: “Germany selling its seized Bitcoin.” While this creates short-term selling pressure, it does not greatly affect liquidity. The system takes over again when they run out of coins to sell.

I hope this has helped you understand one of the factors behind asset market performance. Now that you know what is fueling the market, you can better formulate your thesis and avoid being scared by irrelevant news.

Disclaimer  

Wizard of Soho LLC and Weekly Wizdom publish financial information based on research and opinion. We are not investment advisors, and we do not provide personalized, individualized, or tailored investment advice, nor do we provide legal advice or information. The publisher does not guarantee the accuracy of the information provided on this page. All statements and expressions present are based on the author's or paid advertiser's opinion and research. Directly or indirectly, no opinion is an offer or solicitation to buy or sell the securities or financial instruments mentioned.

As news is ever-changing, the opinions included should not be taken as specific advice on the merits of any investment decision. Investors should pursue their investigation and review of publicly available information to make decisions regarding the prospects of any company discussed. Any projections, market outlooks, or estimates herein are forward-looking and inherently unreliable. They are based on assumptions and should not be construed to be indicative of actual events that will occur.

Contrarily, other events that were not considered may occur and significantly affect the returns or performance of the securities discussed herein. The information provided is based on matters as they exist on the date of preparation and do not consider future dates. As a result, the publisher undertakes no obligation to correct, update, or revise the material in this document or provide any additional information. The publisher, its affiliates, and clients may currently or foreseeably have long or short positions in the securities of the companies mentioned herein. They may, therefore, profit from fluctuations in the trading price of the securities. There is, however, no guarantee that such persons will maintain these positions. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile, or any other means is illegal and punishable.

Neither the publisher nor its affiliates accept any liability for any direct or consequential loss arising from any use of the information contained herein. By using the website or any affiliated social media account, you consent and agree to this disclaimer and our terms of use.