More Money, Lower Prices: The Liquidity–Bitcoin Disconnect Explained

Bitcoin is trading at $104,376 as of this writing, extending losses from the weekend after hitting highs of $111,190 on Friday and $111,250 by Sunday.

The pullback comes even as global liquidity surges to levels unseen since the pandemic, with the US Federal Reserve injecting $125 billion into the banking system over the past five days and China’s money supply topping $47 trillion. More money is flooding the system, yet Bitcoin isn’t responding.

Liquidity, the amount of money or credit circulating in an economy, is often seen as the tide that lifts all boats. When central banks inject cash through quantitative easing (QE), repo operations, or credit expansion, it tends to drive up asset prices from equities to crypto. But that relationship is showing cracks.

“The idea that liquidity expanding necessarily causes Bitcoin to rise is quite unsophisticated and lacks nuance. All types of liquidity are not created equal. QE versus targeted policies like BTFP affect very different parts of the system. More liquidity doesn’t automatically mean a higher BTC price,” said attorney and market analyst Joe Carlasare on X.

Carlasare’s point speaks to the heart of the current disconnect. The Fed’s latest injections, overnight repos totaling $125 billion, are designed to stabilize short-term funding markets, not to stimulate broad risk-taking.

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