Anthony Pompliano on Why Liquidity Will Drive Bitcoin to New Heights

26.09.2024

Earlier today, during an appearance on CNBC’s Squawk Box, Anthony Pompliano, the founder and CEO of Professional Capital Management, delivered his thoughts on the current state of Bitcoin and how the Federal Reserve’s recent interest rate cuts have impacted the broader cryptocurrency market. Pompliano, a well-known advocate for Bitcoin, outlined his expectations for the digital asset in light of the economic changes and discussed its unique relationship with global liquidity.

Bitcoin’s Recent Performance

According to Pompliano, Bitcoin has had an extraordinary year, with its price rising 140% and trading just below $64,000. Pompliano attributed much of this growth to broader economic policies, particularly the Federal Reserve’s decision to cut interest rates by 50 basis points. This shift in monetary policy has helped Bitcoin become the top-performing asset of the year. Pompliano stated, “Bitcoin is the best-performing asset so far this year, with gold and oil futures trailing behind it.”

Pompliano cited a recent study by Lyn Alden and Sam Gallagan that bolsters his confidence in Bitcoin. The study suggests that Bitcoin is the most sensitive asset to changes in global liquidity, responding to liquidity shifts 83% of the time. According to Pompliano, this makes Bitcoin more reactive than traditional market assets such as the S&P 500. He emphasized that Bitcoin’s price fluctuations are more heavily tied to the flow of liquidity in the market than any other asset class, giving it a unique standing in the current economic environment.

Global Liquidity and Bitcoin’s Sensitivity

As Pompliano explained, the central banks’ decisions to inject liquidity into the system have had a profound impact on Bitcoin. “We’ve just gone through a major regime change,” Pompliano noted, referring to the recent transition from a period of monetary tightening to one of monetary easing. With central banks, including the Federal Reserve and others across the globe, injecting liquidity into the market, Bitcoin has become one of the prime beneficiaries of the influx of cheap money.

Pompliano highlighted that this period of increasing liquidity, combined with an expanding M2 money supply, is likely to result in continued Bitcoin gains. He explained, “Bitcoin should be a big winner here for the next couple of months.” Pompliano also pointed out that other central banks, like China’s, are also cutting rates and contributing to a more favorable environment for Bitcoin.

The Role of ETFs and Institutional Investment

While Pompliano is confident in Bitcoin’s long-term potential, he also acknowledged the complexity of the current market dynamics, particularly with regard to institutional investment via ETFs (Exchange-Traded Funds). He noted that it’s difficult to pinpoint exactly how much of Bitcoin’s price movements are influenced by ETF inflows versus direct investments.

“There’s a lot of trading going on,” Pompliano said, noting that some investors are taking part in cash-and-carry trades rather than holding Bitcoin for the long term. This distinction is critical, as the behavior of long-term holders versus short-term traders can have varying effects on Bitcoin’s price discovery. Despite the influence of traders, Pompliano emphasized that over 50% of Bitcoin remains held in long-term wallets, with holders not moving their Bitcoin on-chain for over a year.

Bitcoin’s Relationship with Gold and Other Cryptocurrencies

When asked about Bitcoin’s relationship with other assets, particularly gold and Ethereum, Pompliano expressed his belief that Bitcoin is set apart from other cryptocurrencies, including Ethereum, which he does not personally invest in. While he stopped short of labeling himself a Bitcoin maximalist, he described himself as a “monetary maximalist,” suggesting that he sees Bitcoin as the ultimate winner in the battle for sound money.

Pompliano is particularly interested in stablecoins as another avenue of growth within the cryptocurrency space. While Bitcoin remains his primary focus, he acknowledged that stablecoins have found significant product-market fit and could play an important role in the future of the digital economy.

Bitcoin’s Future in the Face of Monetary Policy

Anthony Pompliano’s outlook for Bitcoin remains optimistic, particularly as the world’s central banks continue to flood markets with liquidity. He suggested that the current macroeconomic conditions are highly favorable for Bitcoin, which has consistently proven its resilience and potential in a world of increasing liquidity. Pompliano’s analysis of Bitcoin’s sensitivity to global liquidity highlights why he believes it will continue to outperform other assets in the coming months.

According to Pompliano, as the Federal Reserve continues its course of rate cuts and the M2 money supply expands, Bitcoin stands to benefit in ways that traditional assets like gold or oil cannot match. He thinks the central banks’ shift from tightening to easing has created a new environment where Bitcoin emerges as the clear frontrunner due to its inherent sensitivity to liquidity.

For Pompliano, the key to Bitcoin’s future success lies in its ability to respond to changes in global monetary policy. As long as liquidity continues to flow, Pompliano sees Bitcoin thriving in this new financial landscape. With its track record as a leading asset in times of liquidity expansion, he believes Bitcoin is well-positioned to continue its upward trajectory in the coming months.