Video summary

Global Liquidity Has Peaked: What Happens to Bitcoin? | Michael Howell

Main summary

Key takeaways

Finance

Macro / Liquidity Thesis (Core Framework)

  • “Liquidity drives markets.” Money flows into and out of financial markets determine asset prices, and economics and geopolitics follow with an “echo” effect later.
  • The liquidity cycle is framed as central-bank-driven:
    • Central banks ease policy to inject liquidity—primarily to stabilize refinancing and bail out the financial system/banks, rather than directly “revive activity.”
    • Liquidity is fungible and spills into risk assets, including corporate bonds, equities, Bitcoin, and gold → “everything bubble.”
    • When real-economy momentum rises, it pulls/sucks liquidity back out of financial markets → liquidity-sensitive assets struggle.

Debt / Refinancing Mechanics Behind Financial Crises

  • Western credit markets are described as collateralized:
    • About 70–80% of lending is said to be collateral-based.
    • “Collateral is old debt”: lenders rely on liquid government bonds (e.g., Treasuries, Gilts/“GeiIltd-edge”-style securities) as collateral.
    • Therefore, default is portrayed as difficult to allow without breaking the credit system; central banks instead provide liquidity so refinancing continues.
  • Crises are described as refinancing breakdown cascades:
    • Debt liquidity ratio threshold: crisis risk increases when this ratio is around 200–230
      • long-run “stability” near 200; above it → crisis risk.
    • Debt maturity wall: refinancing needs rise again after periods of refinancing/terming out; annual debt rollover increases into/after 2025.

Global Liquidity Cycle Timing and Implications

How the cycle is measured

  • The global liquidity cycle is measured as the rate of change of liquidity (not the level).

Historical backtest & model validation

  • Backtest uses data since 1965 across ~90 economies, with ~30 series per country.
  • A projected cycle (estimated using Fourier analysis in 2000–2005) is reported as validated by the Foundation for the Study of Cycles:
    • about 65 months timing window
    • “unchanged” structure.

Reported cycle points

  • Liquidity peaked: end of Q3 last year (relative to their recording).
  • Liquidity bottomed: September 2022.
  • Next liquidity bottom: sometime in 2027, likely 2H 2027.

Crypto linkage

  • A “6-week change” liquidity signal is used to reduce noise and is described as predictive for crypto at a longer horizon:
    • advanced ~3 months / 13 weeks
  • Crypto basket index defined:
    • BTC 60% / ETH 30% / SOL 10% (“BEES U”)
  • Reported correlation metrics:
    • correlation about 0.55+
    • R-squared > 0.3
  • Interpretation:
    • Sluggishness in crypto prices is consistent with slowing liquidity.

Gold linkage / China

  • China’s liquidity (via PBOC) is argued to influence gold, with about a 2.5-month lead/lag.
  • “Great debasement” trade is questioned:
    • claim: Western monetization/debasement “hasn’t happened yet,” while China is doing more now.
  • Constraints / flows:
    • Capital controls limit money leaving China.
    • Crypto is portrayed as illegal in China, pushing some inflows toward precious metals (notably gold).
  • Macro/geopolitical trigger:
    • During “tensions in Iran,” China is said to have “hit the brakes” on liquidity to reduce oil imports; liquidity injections resume around the time of the “deal”/agreement.

Bitcoin / Gold / “What Happens Next?”

  • Long-term bullish on Bitcoin, but emphasizes cycle risk:
    • cycles can ignore long-term trends; Bitcoin could still end the year lower than today even if it rises over the next few years.
  • Near-term approach (high level):
    • Watch gold for confirmation on whether the China liquidity brake persists or reverses.
    • Avoid being an “aggressive buyer right here” if liquidity is rolling over.
  • Explicit caution:
    • “Don’t try and catch a falling knife.”
  • Expectation:
    • Bitcoin and gold are expected to improve in the medium term (after liquidity bottoms), but timing uncertainty is stressed.

US Rates / Tightening Regime (Risk Backdrop for Equities/Crypto)

Key macro claim

  • Two “most important prices” are described as:
    • oil price
    • US Treasury yields
  • Both are described as suppressed below equilibrium, with yields facing upward pressure.

Rate suppression mechanism

  • The US Treasury/Fed are described as intervening heavily in repo markets to keep funding stress down and Treasury yields suppressed.
  • Repo is framed as central to collateralized financing (sale & repurchase against assets like Treasury bonds).
  • SOFR is referenced via the spread between SOFR rates and the US 2-year Treasury, and a MOVE index / repo crisis framing is mentioned.

Japan analogy

  • Japan’s yield curve control stop is used as an analogy:
    • when suppression stops, yields can move sharply.
  • Reported example:
    • 10-year JGB jumped about +200 bps (from ~0.5% to ~2.5%).

US term structure / policy framing

  • A chart ties US 10-year yield to nominal GDP growth, implying upward pressure (dotted line = where yields “may end up”).
  • 2-year Treasury yield is treated as a strong marker for expected policy rates over the next ~two years.

Explicit Risk Performance Reference (2021–2022)

  • The 2021–2022 tightening regime is used as an analogue:
    • S&P 500 fell ~25%
    • Bitcoin fell ~75%
  • Not presented as a prediction of identical drawdowns—more a warning to be careful.

Investment / Asset Allocation Recommendations Mentioned

  • Broad long-term “monetary inflation hedge” framing:
    • “Buy gold and Bitcoin” is described as sensible (while acknowledging short-horizon cycle risk).
  • Diversification/jurisdiction emphasis:
    • diversification geographically; note funding risk for some governments.
  • Actionable but non-specific:
    • no detailed portfolio construction or precise timing rule beyond “wait for stabilization / don’t be aggressive now.”

Disclosures / Disclaimers

  • The speaker explicitly says: “I’m not giving recommendations” on specific actions, while still endorsing long-term gold/Bitcoin as sensible in the closing remarks.

Assets / Instruments / Sectors Mentioned

  • Bitcoin (BTC)
  • Ethereum (ETH)
  • Solana (SOL)
  • Gold / gold bullion
  • Bitcoin ETF exposure (specifically GBTC)
  • S&P 500
  • US Treasury yields (2-year and 10-year), and US Treasuries
  • Repo markets
  • SOFR
  • MOVE index (referenced alongside repo crisis context)
  • Japanese government bonds (JGB, 10-year referenced)
  • PBOC liquidity (People’s Bank of China)
  • Oil price (implied macro variable)
  • General categories: debt, bonds, corporate bonds, equities

Methodology / Step-by-Step Elements Explicitly Shared

Liquidity measurement and cycle construction

  • Measure global liquidity as “rate of change”, not the level.
  • Use a multi-country dataset:
    • ~90 economies
    • ~30 series per country
    • history since 1965
  • Apply a periodic function modeled as a “sine wave” using Fourier analysis from 2000–2005.
  • Use “6-week changes” as a higher-frequency liquidity signal to reduce noise.

Crypto prediction linkage

  • Build a crypto basket index:
    • BTC 60% / ETH 30% / SOL 10%
  • Compare crypto 6-week changes to the liquidity series.
  • Liquidity is described as advanced about ~13 weeks / 3 months.
  • Evaluate predictive strength via reported metrics:
    • correlation about 0.55+
    • R² > 0.3

Macro rates linkage

  • Use the relationship between nominal GDP growth and US 10-year yield with a “risk-adjusted” framing.
  • Use 2-year Treasury yield as an indicator of expected policy rates over ~two years.

Presenter / Sources Mentioned

People

  • Michael Howell (“liquidity king”)
  • Host: Danny
  • Prior show guests referenced:
    • Luke Groman
    • Nick Bartier
    • James Lavish
    • Jeff Ross
    • Kevin Walsh (Fed official referenced)

Organizations

  • Philadelphia Fed
  • Federal Reserve (Fed)
  • People’s Bank of China (PBOC)
  • Foundation for the Study of Cycles (US)

Original video