Liquidity: The "invisible driver" that determines the bull and bear in the crypto world.

In the past two years, when discussing the market in the crypto world, "Liquidity" has definitely been an unavoidable high-frequency term. With a sluggish market, altcoins lying flat, the bull market delayed, and even the market plunging, there are always voices pointing to the same reason: liquidity is insufficient.

But what exactly is Liquidity? Don't worry, let me explain it in simple terms — what we're talking about here is not the liquidity of a single coin or a specific exchange, but the global macroeconomic liquidity that affects the overall situation.

After everyone makes money, they rarely spend it all at once; they will always "store water" to use slowly. Some people put their money in wallets or store it in third-party payment services so they can transfer it out whenever they want; others invest in fixed-term financial products or buy long-term funds, but they have to redeem it first and wait for it to arrive when they need money. This convenience of "whether money can be turned into cash immediately" is what finance refers to as "Liquidity", which essentially measures the speed and ease of converting assets into cash.

Liquidity can also be subdivided into different dimensions such as M0, M1, and M2, among which M2 is a key signal for observing the economy. For example, when the government increases the monetary supply to support the real economy, wealth management funds flow back to banks, and fiscal deposits are converted into corporate time deposits, the scale of M2 will expand. This means that the "money in society has increased," liquidity is more abundant, and economic activities will be more active.

All of this is directly linked to the bull and bear fluctuations in the crypto world. The two most typical extreme cases are still fondly discussed by veteran players:

- In 2020, the global pandemic broke out, and the Federal Reserve "opened the floodgates" to rescue the market, rapidly cutting interest rates and significantly increasing the money supply, resulting in a surge in market liquidity. With nowhere else to go, a large amount of money flowed into the crypto world, directly giving rise to a vigorous bull market.
- By 2022, the wind had completely changed. Starting from February, liquidity gradually tightened, and after April, the Federal Reserve officially began the interest rate hike cycle, causing "money" in the market to start flowing back to banks. Soon after, the crypto world also entered a prolonged bear market.

It is evident that liquidity is the "invisible hand" that determines the direction of the financial market. For the crypto world, the next key point will depend on the Federal Reserve's interest rate cuts - it is known that there is a high probability of two more rate cuts this year. Some say the bear market has already arrived, while others are still waiting for signals of liquidity easing. The final answer can only be verified by the market and time.