Velocity of money is stuck at historic lows — around 0.77 globally, a level lower than what we saw after the GFC or during the COVID crash. That alone suggests real demand is weak, economic confidence is tentative, and the system is still in a holding pattern. And yet, risk assets — particularly crypto — are showing strength.
This isn’t a coincidence. It’s the early phase of a liquidity shift. While most investors wait for textbook indicators of a market cycle, capital is already moving. Not into growth. Not into wages. But into asymmetric trades like Bitcoin.
The Liquidity Regime Is Quietly Shifting
While velocity remains suppressed, Global M2 is starting to rise again:
- China has resumed easing
- Japan never stopped
- The Fed and ECB have slowed their balance sheet reduction
- Emerging markets are actively adding liquidity
This isn’t the aggressive QE era of 2020. But it’s also no longer a tightening cycle. We’ve entered what might best be described as pre-pivot mode — where the removal of tightening is as meaningful as the return of stimulus itself.
In this environment, capital doesn’t wait for official policy turns. It starts positioning before the headlines catch up.
The Setup: An Engine Ready to Fire Without Fuel
The current macro configuration looks like this:
- Velocity = historically low
- M2 = rising again
- GDP = underwhelming
- Inflation = cooling
- Central banks = cornered
- Risk assets = bidding
That’s not a growth-driven bull market. It’s a market hunting for exposure because there’s nowhere else for capital to go. The real economy is not absorbing liquidity — so it rotates within the financial system. Out of cash. Out of bonds. Into assets with asymmetric upside.
And Bitcoin is sitting right at the front of that queue.
Low Velocity Doesn’t Mean Bearish — It Means Risk-On
A common misconception is that low velocity signals weakness in risk assets. But that only holds if liquidity is also being drained. When velocity is low and M2 is rising, capital doesn’t disappear — it just gets redirected.
Post-2020 proved this:
- Velocity collapsed to record lows
- M2 exploded off the back of global stimulus
- GDP stalled due to lockdowns and disrupted supply chains
- And yet, risk assets exploded — from crypto to equities to housing
Today’s picture rhymes with that cycle:
- Velocity remains flat
- M2 is starting to climb
- Growth is fragile
- But crypto narratives are resurgent
That’s not a coincidence. It’s the market reading the same imbalance — again.
If the Fed Cuts Into This — It’s a Fuse, Not a Fix
With inflation continuing to drift lower and the Fed increasingly boxed in by slowing data, the prospect of a rate cut becomes more plausible.
But here's the key point: you don’t need more liquidity to trigger the move. You just need the Fed to stop tightening.
That alone will prompt the market to reprice risk — quickly. The capital is already parked. It’s just waiting for permission. And when that comes, the move won’t be gradual. It will be aggressive, disorderly, and front-run by the same assets that led post-COVID.
Crypto is built for this scenario. High-beta, narrative-driven, liquid enough to trade, but volatile enough to explode. That’s why it’s already moving.
Conclusion: Velocity Isn’t a Constraint — It’s a Signal
When money stops flowing through the real economy, it doesn’t disappear. It gets redirected — into yield, into charts, into speculation.
Velocity tells us that the real economy remains stalled. But it also tells us that capital is still trapped — and looking for exits. The longer that mismatch persists, the more fuel there is for speculative risk-on rallies. That’s what we’re seeing now. And that’s why crypto continues to bid, even when macro headlines suggest caution.
The reacceleration won’t be driven by growth. It’ll be driven by liquidity looking for a home.
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