Real Vision Chief Crypto Analyst Jamie Coutts has sounded a stark warning for Bitcoin in the months ahead. Citing his new Bitcoin Derivatives Risk Score (DRS) model, Coutts contends the leading cryptocurrency’s price faces one of two sharp outcomes: a severe downturn or a surge to new all-time highs (ATH).

Bitcoin’s Q2 Outlook

In commentary shared via X today, Coutts highlights his “first pass” at the DRS model, noting that the market’s most recent instance of “Cat 5 euphoria” in Q1 2024 was followed by a pullback of only around 30%. He contrasts this with a comparable episode in 2019, which saw a 50% decline—widening to 70% if the COVID shock is accounted for.

“Looking back at Q1 2024’s Cat 5 euphoria—which I flagged back then (in February 2024)—I’m still surprised the pullback was only -30%. The only similar move outside a cycle top was in 2019, with a 50% drop (70% if you factor in the COVID shock),” he explains.

Bitcoin Derivatives Risk Score (DRS) model

Coutts emphasizes that 2019 is a better barometer for current market conditions than 2021. The rationale, he observes, is that the 2019 rally preceded a major global liquidity expansion. By 2021, Bitcoin had already appreciated 12x off its lows while worldwide liquidity grew by 30%, reflecting a vastly different macro environment.

Assessing the market’s present risk level, Coutts points out that Bitcoin’s DRS metric has slid into the “low-risk quantile,” a zone he says offers minimal predictive power for future prices. “So, where are we now? Bitcoin’s DRS is in the low-risk quantile—where predictive power is low. If Bitcoin has peaked, we should expect a brutal bleed lower,” he cautions, before adding that the possibility of a rebound remains high.

Global Liquidity On The Rise

Coutts then underscores global liquidity’s potential to trigger another Bitcoin rally. He believes an upcoming inflection point in global liquidity—driven by the need to stimulate heavily indebted economies—will likely fuel the derivatives market, which he calculates to be four times bigger than the spot market.

“That’s not my outlook though. Global liquidity is ready to inflect that will re-invigorate the derivatives market (4x Spot), potentially jettisoning Bitcoin to new ATHs by May (or end of Q2 for extra padding).”

Another key insight from Coutts centers on the Global Liquidity Index, which he says has been in contraction for an unprecedented stretch. “This marks the longest contraction of the Global Liquidity Index in Bitcoin’s history—three years and counting (measured from the peak). Previous tightening episodes (2014–2016 and 2018–2019) lasted < 2yrs. How much longer will this go on?”

He argues that a renewed injection of liquidity is inevitable, pointing out that governments—especially those with debt-to-GDP ratios exceeding 100%—would be hard-pressed to refinance if nominal GDP lags behind rising interest costs. “The fiat, fractional-reserve, debt-based system will implode without liquidity injections. The spice must flow.”

At press time, BTC traded at $87,703.