On the surface, this theory makes a lot of sense, and I was a big believer myself that logic would dictate that extra liquidity could be what carries a bull market, maybe even be the sole cause.

Until I actually looked at the data.

While there was indisputably some positive effect of having extra cash on the market, numbers showed that the effect wasn't as big as you would expect. Nor was it even what triggered the bull market.

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Why wouldn't over $5 Trillion of extra cash not have a profound impact on Bitcoin and the crypto market?

Keep in mind, the full $5 Trillion didn't go into stimulus checks, much less into crypto.

Only $1.8T went to individuals.

The rest went to healthcare, local government, airline industry, businesses, etc...

Something that would maybe still help stocks more, but not so much crypto (at the time, the correlation to stocks still wasn't strong, around 0.4-0.5).

Even the $1.8T didn't all go to stimulus checks. A big part went to Child tax credits, SNAP, unemployment, retirement.

https://www.nytimes.com/interactive/2022/03/11/us/how-covid-stimulus-money-was-spent.html

$817B went to stimulus checks.

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What percentage of the stimulus checks actually went into crypto?

According to Mizuho research, about 10% of stimulus recipient planned on investing their check in stocks or crypto.

https://www.yahoo.com/video/nearly-10-of-the-380-billion-in-stimulus-checks-may-be-used-to-buy-bitcoin-and-stocks-survey-131009531.html

Mizuho has estimated that the amount used from stimulus check would only have added about a 2-3% to the market value of Bitcoin.

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What was happening to Bitcoin before Covid, and did Covid and Fed printing trigger the bull run?

One of the first problems I ran into with this theory, is Bitcoin was already at the beginning of a bull market, and had already made its turning point, before any of the stimulus checks, or before Covid became a big world issue.

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Turning point for Bitcoin, beginning of bull market, and Covid interruption

Stimulus checks didn't trigger the bull market.

The bearish and selling pressure had already been exhausted, already reverted to bullish and buying pressure, already had a breakout, and already had its first parabolic run to $13K. Which had already corrected, and the resuming bull trend got interrupted with the Covid crash.

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The actual timeline of the stimulus checks versus the price of Bitcoin.

In the following chart are the zones where the stimulus started to hit people's accounts.

Direct deposits are yellow, mailed checks are orange.

It's in "zones" because not everyone got their checks instantly or at the same time. There were also waves, delays, etc...

Keep in mind, there would likely be additional time between the time those funds are received, and the time they can actually be traded on an exchange, especially if they have to open their first account.

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First stimulus check distribution

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Second stimulus check distribution

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Third stimulus check distribution

All 3 distributions are followed by a downtrend.

The difference is in the 3rd distribution, there is crabbing throughout most of the distribution, followed by a crash.

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Research has found that the stimulus checks may have only affected Bitcoin trading by an estimated 3.8%

According to the research done about stimulus checks, by the Federal Reserve Bank, only 0.02% of all the Cares Act fund distributed went into Bitcoin, with only an estimated 3.8% increase in trading resulting from the stimulus money.

https://www.clevelandfed.org/en/newsroom-and-events/publications/working-papers/2021-working-papers/wp-2113-impact-of-covid19-stimulus-checks-on-retail-trading-in-bitcoin.aspx

3.8% is still impactful, but probably nowhere near as high as people would have expected. Much less the source of the majority of the trading.

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The true effect of the stimulus checks.

The stimulus checks still had some effect.

But not so much in creating or increasing the bull market, but in compensating and decreasing the negative macros and fears of the Covid crisis.

The market was in high fear of businesses closing, and going into a bear market.

The stimulus checks wiped out a lot of that fear.

The effect didn't come so much from the stimulus checks going into crypto, as the data shows, but came more in a psychological way in wiping out the fear of a bear market from the Covid crisis, just enough to allow the crypto bull market to resume.

The stimulus check didn't add much money or liquidity to crytpo, but it kept average Joe from running out of money, and removed the pitfall of Covid, to allow the crypto bull market to continue to run free and unimpeded.