Bitcoin continues to strengthen and has re-entered the $114,000 mark. If compared with the growth rate of the U.S. M2 money supply, the price of Bitcoin is still below the reasonable value range.
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The gap between M2 expansion and Bitcoin’s price has widened to its highest level since August 2024, which has typically been a strong entry point in the past. Similar situations in 2016, 2019, and 2021 all signaled strong subsequent rallies.
Over the past decade, Bitcoin has shown a positive correlation with M2 money supply, with money supply growth typically leading Bitcoin's price by approximately three months. If this historical correlation persists, the liquidity tailwinds from the fourth quarter's funding cycle could fuel a new wave of Bitcoin gains.
There are still key technical resistances to be broken
Bitcoin continues to attract buying during intraday pullbacks, and is currently forming a mild but relatively fragile upward trend, with the main attack and defense zone falling at $112,000.
The real test is around $115,000, above the 50-day moving average. If this price level can be maintained, it will indicate the return of market optimism. Bitcoin is still lagging behind the record highs of US stocks.
On the other hand, the options market shows that the demand for safe-haven assets has increased, and the short-term market sentiment is still neutral or conservative.
The Solana ecosystem also continues its strong performance. The total value locked (TVL) on the chain has risen to $12.2 billion, a 57% increase from June, reaching a new all-time high. It may challenge $300 as on-chain activity and liquidity continue to climb, but whether this can be achieved will depend on the overall risk appetite.
At the same time, the capital momentum of meme coins has become active again, continuing the market's preference for "light assets and high volatility".
Although short-term technical and capital factors bring positive factors, the overall economic environment remains the biggest variable.
Last night's CPI data, released slightly higher than the expected 0.3% rise of 0.4% on a monthly basis, remained broadly in line with market expectations for both the annual and core CPI figures. Coupled with worsening unemployment data, the market accepted this as support for a rate cut. Consequently, the S&P 500 index reached a new high, while BTC and ETH also drove gains in the cryptocurrency market. Overall, the market is brimming with optimism. The market currently anticipates a one-point rate cut from the Federal Reserve, and the dot plot is widely expected to indicate at least two more rate cuts this year, which is bullish for market trends.
Net inflows into US BTC and ETH spot ETFs also hit a weekly high on Wednesday, likely due to optimism fueled by the PPI data released the day before, leading investors to seek entry at a low point before the rate cut. While ETF data for Thursday was not yet complete, net inflows were still evident overall. Bitcoin, after a week of decline, finally re-established its short-term upward trend today. If it can break through $118,000 on the back of positive expectations for a rate cut, it could potentially reach new highs.
With no significant economic data releases expected to impact the pace of rate cuts before the Federal Reserve's meeting next Wednesday, the current expectation of a one-basis-point rate cut will likely set the tone for market trends over the next few days, with no potential for a change until Thursday morning. Markets are expected to remain volatile and generally upward in the run-up to the meeting. This also suggests a relatively monotonous market trend. If you anticipate a rate cut to trigger a new round of gains, consider positioning appropriately ahead of the meeting.
More important than whether interest rates will be cut is whether the massive money market funds will begin to pour into risky assets. If ETFs continue to receive a steady inflow of funds, it will provide structural support for the Bitcoin and Ethereum markets.
