Current Monetary Policy, Bitcoin's Role as a Liquidity Proxy, and Investment Strategies

Data from the Gilin API covering Bitcoin and major U.S. indices from January 2024 to December 16, 2025 shows: Bitcoin’s closing price rose from approximately $42,300 to $87,700, a cumulative increase of 107.48%, which was the largest among the three major U.S. stock indices over the same period (S&P 500 +43.3%, Nasdaq +55.4%, Dow Jones +28.1%), with volatility significantly higher than traditional assets [0]. Concurrently, federal funds rate futures continued to decline, while Bitcoin prices remained strong during the rate-cut cycle (since September 2024) — this divergence of “interest rate decline/liquidity magnitude not synchronized” is regarded as a typical signal of impaired actual monetary policy transmission.

Figure: Comparison of Bitcoin price (left axis) and federal funds rate futures (right axis) trends from 2023 to 2025. The blue shaded area indicates the rate-cut window. The figure clearly shows the divergence where interest rates continued to decline while Bitcoin-driven liquidity indicators remained upward [0].

Combining investment insights from Bitcoin prices and liquidity-related indicators, multiple market observers point out: The continuation of global money supply (especially M2) in the easing cycle still supports Bitcoin’s upward trend, with a long-term correlation coefficient as high as 0.94, indicating that although the interest rate path seems to be easing at first glance, actual liquidity is still dominated by broader global capital supply trends [2]. Even if the Federal Reserve cuts interest rates again as expected by the market (a 70 basis point cut is expected for the full year 2025), Bitcoin’s performance differentiation will still depend on whether funds can truly enter the high-risk asset market [1].

Recent analysis indicates that liquidity drivers are gradually shifting from monetary policy to fiscal policy. When fiscal expenditure contracts or debt expansion expectations rise, the “marginal effect” of Fed rate cuts will be weakened [3]. As of October in the 2025 fiscal year, the deficit between fiscal revenue and expenditure has exceeded $1.0 trillion, showing that fiscal pull on capital supply remains significant, and this fiscal-dominated liquidity cycle is highly consistent with Bitcoin’s price trend: when fiscal injection is insufficient, liquidity tension is transmitted to risky assets, squeezing safe-haven/liquid assets like Bitcoin, making it difficult to break through even if interest rates decline.

Therefore, the current cycle can be understood as “long-term monetary easing + short-term liquidity constraints”. Bitcoin, through the sustained high level of Bitcoin/USD trading volume relative to price or volatility, reveals the market’s comprehensive response to “policy uncertainty + fiscal tightening”: even if interest rates are cut nominally, liquidity has not improved significantly; instead, due to structural fiscal gaps, funds prefer more liquid and volatile assets over traditional bonds.

• Dynamically adjust risky asset allocation:
  Under the assumption that liquidity has not synchronized with rate cuts, continue to hold or increase positions in Bitcoin/crypto-related ETFs (e.g., BTCUSD futures, Grayscale spot shares). Leverage their sensitivity to liquidity changes to capture retracements and rebounds during the “fiscal fund shortage-liquidity tension” phase. However, strictly control capital costs and adopt phased building/reducing strategies to avoid single market recovery being disturbed by policy expectations.

• Hedging with safe-haven portfolios:
  Add gold and TIPS (gold price/inflation-linked U.S. bonds) as defensive targets during the liquidity convergence period, as they have more stable value storage functions under the dual background of “fiscal tightening + rate-cut expectations”. When the correlation between volatile assets like Bitcoin and traditional safe-haven varieties increases, lock in the overall volatility range through contracts for difference or option combinations (e.g., BTC call options + gold put options).

• Focus on yield curves and fiscal supply-demand:
  In the current liquidity cycle, short-term interest rates continue to decline while long-term yields are more sensitive to fiscal risks. It is recommended to control duration in the medium-short term (3—7 years) and prioritize assets with strong policy support (e.g., AAA-rated mortgage-backed securities, corporate bonds with good credit ratings). At the same time, use the curve steepening opportunity during U.S. bond supply-demand imbalances to enhance returns, such as adopting a tail-protected yield curve strategy (buy medium-term, hedge long-term) to avoid long-term interest rate upward risks when fiscal pressure is released.

• Event-driven and liquidity early warning:
  Continuously track Treasury bond auction results, congressional budget negotiations, and changes in core bond custody balances. If fiscal supply suddenly increases but Bitcoin/liquidity indicators do not recover, it can be regarded as an extension of the “fiscal-dominated liquidity shortage” phase. Risk exposure should be reduced in advance and cash/alternative liquidity tools (e.g., money market funds) should be increased.

For further exploration of Bitcoin and derivative liquidity, core capital pools (e.g., major funds/exchanges), or building a more complete multi-asset arbitrage model, consider enabling Gilin AI’s deep research mode to obtain broker-level daily data, option implied volatility, and capital flow details.

[0] Gilin API Data
[1] Forbes — “Global Money Supply Is Increasing, Supporting Bitcoin Price” (https://www.forbes.com/sites/digital-assets/2025/10/31/global-money-supply-is--increasing-supporting-bitcoin-price/)
[2] Forbes — “Bitcoin And Global Liquidity: How Money Supply Shapes BTC’s Price” (https://www.forbes.com/sites/digital-assets/2025/02/28/bitcoin-and-global-liquidity-how-money-supply-shapes-btcs-price/)
[3] Yahoo Finance — “Why Gold Is Winning Over Bitcoin in 2025: Liquidity, Trade, …” (https://finance.yahoo.com/news/why-gold-winning-over-bitcoin-130000327.html)