The State of Global Liquidity and Its Impact on Bitcoin in 2026
As we approach 2026, global liquidity is surging towards unprecedented heights, projected to reach approximately $123-130 trillion. This growth can largely be attributed to the acceleration of M2 expansion in China, which has spurred capital flows across various asset classes. Despite this significant increase in liquidity, Bitcoin (BTC) has continued to lag behind traditional stores of value like gold and silver. While the divergence in performance may seem concerning, it may simply indicate a delay rather than weakness in Bitcoin’s liquidity response.
China’s M2 Expansion: A Key Driver for Liquidity
Between 2024 and 2026, China’s M2 money supply grew steadily from roughly $45 trillion to around $49 trillion, maintaining a controlled annualized growth rate of 8-8.5%. This ascending trajectory suggests a stable macroeconomic backdrop rather than a reactive stimulus-driven surge. The stability of China’s M2 is fostering a favorable long-term outlook for assets like Bitcoin. Even though there appears to be a disconnect in short-term price actions, the fundamentals indicate that Bitcoin is still benefiting from these macroeconomic tailwinds.
Bitcoin’s Performance in Context
While Bitcoin has underperformed relative to gold and silver—where gold appreciated by nearly 70% and silver saw a staggering 150% increase—this does not necessarily spell doom for the cryptocurrency. In fact, during this period, Bitcoin’s performance softened by only about 6-7%. Historical trends show that higher-beta assets, such as Bitcoin, can experience more considerable repricing following a liquidity surge. Therefore, investors remain patient and optimistic, recognizing that increased liquidity has historically paved the way for crypto market growth over the long haul.
Market Dynamics as Capital Flows Shift
Situational dynamics indicate that as liquidity restored in the broader market, investors initially gravitated toward traditional hedges before pivoting toward riskier assets like Bitcoin. However, by mid-2025, Bitcoin’s price movements began to reflect a more independent trajectory, shifting focus away from immediate liquidity feeds to the evolving risk appetite in the market. This decoupling suggests that while Bitcoin continues to benefit from macroeconomic factors, short-term price action may react more dynamically to broader market sentiment and positioning.
ETF Flows: Volatility and Price Action
Bitcoin’s immediate price behaviours are significantly influenced by ETF flows, as evidenced by data from CoinGlass. Positive spot flows grew robustly in mid-2025, establishing a connection with Bitcoin’s bullish price trajectory toward the $120,000 – $130,000 range. However, volatility became pronounced by late 2025, with significant outflows observed, pulling Bitcoin prices down below $100,000. This turbulent period underscored the fragility of short-term sentiment, with net monthly movements hovering around $1.2 billion but marked by predominately negative trading days.
The Long-Term View: A Structural Tailwind
Despite short-term volatility, Bitcoin stands to benefit from the structural liquidity tailwinds supported by global economic conditions and China’s stable M2 growth. While initial capital rotations may center on more traditional assets, the longer-term implications for Bitcoin remain positive. The fundamental underpinning for Bitcoin’s growth potential lies in the increasing liquidity environment, even as short-term price dynamics more closely align with market risk appetite and institutional positioning.
Conclusion
In summary, the landscape of global liquidity is poised for significant growth, driven by factors such as China’s M2 money supply expansion. Although Bitcoin has encountered short-term challenges compared to traditional stores of value, its long-term growth trajectory remains intact. As liquidity cycles permit, Bitcoin is likely to capture its share of the growing capital influx. For investors, the crucial takeaway lies in understanding that while immediate price movements may exhibit volatility and disconnects, the overarching macroeconomic conditions offer a durable foundation for Bitcoin’s potential ascendance in the financial ecosystem.
