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Will Clemente, the co-founder of Reflexivity Research and a renowned on-chain analyst, shared an intriguing perspective on the potential performance of Bitcoin in a stagnant environment with cryptocurrency investors through a detailed analysis.
According to Clemente, Bitcoin’s deviation from being a traditional asset dependent on economic performance and its adoption as a hedge against monetary value depreciation, similar to gold, could be the reason for its rise. Clemente explained the matter as follows:
Bitcoin is a hedge against monetary value depreciation. It falls when liquidity decreases and rises when liquidity increases.
According to the analyst’s perspective, understanding Bitcoin’s performance after the decline in December 2021 is crucial. According to Clemente, this situation was seen as a direct result of the decrease in existing liquidity in the market.
Clemente points out the inflation decreases in the market following the FOMC and interest rate decisions, suggesting that the decrease in tight monetary tightening could pave the way for an increase in liquidity.
Clemente stated:
Bitcoin does not have cash flow and is therefore not dependent on the economy; it is historically dependent on liquidity.
Clemente also touched on other issues, acknowledging that the first move after potential economic events could be towards traditional assets such as the US dollar or treasury bonds instead of Bitcoin.
Furthermore, he foresaw that such an event could likely trigger significant liquidity flow, followed by a rapid recovery resembling a V-shaped curve for Bitcoin.
Liquidity is More Important than CPI
Clemente also highlighted past misunderstandings within the community. He stated that the majority, including himself, previously misunderstood Bitcoin’s role as a hedge and added:
The biggest misconception that most Bitcoin investors (including myself) misunderstood in 2021 was the idea that Bitcoin is a hedge against liquidity, not CPI. CPI lags behind liquidity.
With the current decrease in inflation, it is expected that there will be a movement towards increased liquidity, and during this process, it is believed that Bitcoin can positively affect its value as a hedge against monetary value depreciation.
Clemente’s analysis also addressed the general market sentiment. In response to a critic’s attention to the risky side of Bitcoin, he expressed the view that the correlation between Bitcoin and liquidity trends should be examined.
Overlay Bitcoin with liquidity and then answer the question of whether liquidity is ready to rise or fall in the next 12 months. The market couldn’t agree with me more. Pure facts, no emotions. Do the work.
As of the time of writing, Bitcoin (BTC) was trading at $37,100.
