Why does the crypto market remain sluggish despite loose liquidity? The rebound opportunity in 2026 is here

A seemingly contradictory phenomenon is unfolding in the market: the global money supply has hit a record high, central banks continue to cut interest rates, and major economies are competing to implement easing policies, yet the cryptocurrency market declined by 21% in Q4 2025. What exactly is going on? The answer may be more complex than you think.

The Fact of Liquidity Surge: Global M2 Approaching $130 Trillion

According to Alphractal data, by 2026, the global M2 money supply has reached an all-time high of nearly $130 trillion. What does this number mean? Simply put, cash and near-cash assets in the global financial system are growing at an unprecedented rate.

Specifically:

• China contributes the most: reaching $47.7 trillion, accounting for 37% of the global total, serving as the engine of the current global easing cycle
• The US follows suit: a $400 billion government bond issuance plan continues to inject liquidity into the banking system
• But not globally uniform: M2 in Japan, India, South Korea, and other economies is actually contracting

This uneven expansion pattern signals an important message—major economies are engaging in some form of competition in liquidity provision. When funds become easier to access, investors are typically attracted to higher-risk assets, and cryptocurrencies, as a typical risk asset, should theoretically benefit from this environment.

Why Is the Crypto Market Down (why is crypto market down): Liquidity Improvement ≠ Market Rise

This is the core issue. Despite three rate cuts, government bond issuance, and M2 surges—favorable factors—the total market capitalization of crypto (TOTAL) actually declined by 21% this quarter, far below the high at the end of Q3.

The main reasons for this disconnect include:

Investor Sentiment Lag

• Macro easing needs time to translate into market confidence
• Profit-taking at the end of 2025 and regulatory pressures continue to suppress investor risk appetite
• The psychological shift from cautious to bullish does not happen overnight

Inefficient Liquidity Transmission

• M2 growth does not directly equate to funds flowing into risk assets
• The speed and direction of liquidity growth vary significantly across economies
• How much of China’s $47.7 trillion M2 will cross borders into crypto markets remains unknown

Market Rational Skepticism About “Why Is Crypto Market Down”

• Easing policies alone are insufficient to reverse market trends
• Actual signals of incremental capital inflows are needed

China’s M2 and Its Global Impact: Who Is Driving This Easing Cycle?

China accounts for a large part of the global M2 increase, driven by its proactive monetary policy stimulus. When the world’s largest manufacturing country and second-largest economy releases liquidity, global capital markets feel the ripple effects.

However, this China-driven easing cycle has a characteristic—regional disparities are prominent:

This means global liquidity is not expanding uniformly but exhibits a “center expansion, periphery contraction” pattern. In this context, the crypto market faces a world of liquidity divergence, not the full easing scenario often imagined.

The Rebound Potential in 2026: Can Liquidity Drive Crypto Assets Higher?

Despite the disappointing current situation, macro outlook suggests that 2026 could still see a strong rebound, for reasons such as:

1. The Liquidity Base Is Still Expanding

• The record-high global M2 itself is a bullish signal
• Major central banks have just begun their rate-cut cycle (three consecutive cuts by late 2025)
• The full effect of this easing policy will take 2-3 quarters to fully materialize

2. Room for Risk Appetite Recovery

• Current crypto market cap is well below the Q3 peak
• Once investor caution eases, a rebound of 20-30% is possible

3. Reallocation of Capital Flows

• In zero or low-interest-rate environments, cash yields decline
• Institutions and retail investors face pressure to seek returns
• Cryptocurrencies will attract renewed attention during this process

Key Indicators Investors Should Watch

As 2026 approaches, the following indicators will determine whether the crypto market truly rebounds:

• Global M2 growth rate: Will it continue accelerating or start to slow?
• Regional liquidity disparities: Will Chinese capital cross borders into digital assets?
• Investor risk appetite index: From fear indices (VIX) to bullish/bearish sentiment in crypto
• Policy expectations: Will new easing policies emerge in 2026?

Conclusion: Waiting for the True Power of Easing Cycle to Unleash

In summary, the crypto market in 2026 faces an environment of ample liquidity but fragile sentiment. The reason for “why is crypto market down” lies not in macro fundamentals but in market psychology and the lag in liquidity transmission.

The surge in global M2, China’s $47.7 trillion monetary expansion, and US bond issuance are all paving the way for risk assets. But a genuine rebound requires waiting for investor sentiment to recover and cross-border capital to flow back in.

When that moment arrives, investors who positioned at the lows may reap substantial gains. The issue is not a lack of liquidity but that the timing has not yet truly arrived.