Bitcoin Sees Highest Gains in Liquidity Booms, Outperforming NASDAQ and Gold, Will it Happen This Time?

Bitcoin outperformed traditional assets during the 2020 monetary expansion and may outperform again with potential liquidity increases.

Bitcoin’s ability to thrive during periods of monetary expansion has been highlighted by insights from Ecoinometrics, a provider of crypto-related data. As major economies face potential fiscal challenges, the spotlight returns to how Bitcoin responds when fiat currencies experience debasement. 

The most significant example of this phenomenon can be traced back to 2020 when the U.S. and global governments injected massive liquidity into their economies in response to the COVID-19 pandemic. 

Bitcoin performs best during periods of monetary expansion.

It performs better than the stock market, better than gold.

Bitcoin is your best hedge against fiat currency debasement.

Want proof? Look at 2020. pic.twitter.com/rFBDtwciUd

— ecoinometrics (@ecoinometrics) October 17, 2024

During this period, Bitcoin outperformed traditional assets, demonstrating its potential as a hedge against inflation and currency debasement.

BTC Growth Amid Liquidity Expansion

In the aftermath of the pandemic, central banks worldwide responded with large-scale monetary expansion. Notably, in the U.S., the M2 money supply increased by a staggering $6 trillion, a direct response to the economic fallout from COVID-19. 

Ecoinometrics’ analysis indicates that Bitcoin, unlike traditional assets, benefited disproportionately from this liquidity influx. During this time, the cryptocurrency achieved an impressive compound annual growth rate (CAGR) of approximately 150%. 

This performance dwarfed that of the NASDAQ, which saw a CAGR below 50%, and gold, which lagged considerably behind. Bitcoin’s CAGR particularly outpaced the NASDAQ by nearly four times and surpassed gold by about 20 times.

Current Economic Conditions

Currently, the economic landscape has shifted from the aggressive monetary expansion seen in 2020. Governments are not printing money at the same scale as during the pandemic, and as a result, Bitcoin’s price has not been erratic in recent months. 

Ecoinometrics notes that without significant monetary growth, Bitcoin tends to stabilize, as its strongest performances often align with periods of fiat debasement. Despite this calm, looming global fiscal challenges, including mounting deficits and rising debt levels, suggest that another period of liquidity injection could be on the horizon. 

Should this occur, Bitcoin could see another significant price surge, outperforming traditional stocks and asset classes as well.

Another Likely Trigger for Bitcoin

Another factor that could propel Bitcoin to new heights is the upcoming U.S. presidential election. According to research from Bernstein, Bitcoin could break its current all-time high of $73,949 if Donald Trump becomes the next president. 

The analysts argue that Trump’s favorable stance towards digital assets could further accelerate Bitcoin’s adoption and growth. Standard Chartered has also weighed in, forecasting Bitcoin to potentially reach $150,000 in the event of a Trump victory and predicting it may hit $200,000 by 2025, regardless of the election outcome.