Cryptocurrency markets have been in a sustained bull rally since late 2021. However, despite gains of 70% in Q1 2021, there are signs that Bitcoin (BTC) prices may soon come under pressure. This is due to an expected lack of liquidity as global central banks tighten quantitative measures, leading to declines in risk assets.

The United States Federal Reserve’s quantitative tightening (QT) which began in late 2021, has been associated with the current all-time high for Bitcoin, though since then the money supply has declined substantially. According to Bloomberg Intelligence, US money supply has dropped the most since 1950s, signifying headwinds for the crypto markets.

Some positive news for risk assets has come in the form of a drop in the US dollar index (DXY), as it abandoned a modest comeback to fall back below 102. Despite this, popular crypto Twitter account Cold Blooded Shiller, appears cautiously optimistic on the outcome for BTC prices. Analyst Justin Bennett has suggested that DXY may rebound, reminding traders that the US dollar is still the global reserve.

While inflation may be attributing to a drying-up of liquidity, recent injections by the central banks of China and Japan have supported the markets. A top question plaguing analysts for April is what stops this contracting liquidity, and whether Bitcoin may return to market lows once again.

Given the close relation with central bank liquidity measures, investors in the crypto space should keep an eye on the macroeconomic climate, as quantitative squeezing may become a chocking factor for markets and Bitcoin. If a rebound in the US dollar index materializes, this could push prices back to all-time highs, although only time will tell.



Other News from Today