As crypto grows in adoption, especially amongst large institutions, many retail investors wonder why the global macroeconomic outlook still matters. Despite crypto’s ambition to sever ties with the traditional stock market, the path to complete decoupling remains elusive.

The U.S. is tentatively holding onto its position as holder of the global reserve currency, with many economists wondering if this is the beginning of the end. Meanwhile, the economic landscapes of both Russia and China appear fraught with challenges as the specter of another global conflict looms ominously on the horizon.

This leads many people to wonder whether now is the time for cryptocurrencies to ascend in popularity and begin to replace fiat currencies. However, the only significant uptick in market activity over the past few months has centered around rumors of BlackRock’s potential ETF approval, which has again caused a price surge this week.

Before this week, the previous spike in Bitcoin’s price illustrates why macroeconomic conditions remain important to the cryptocurrency market. While rumors of an imminent ETF approval did trigger an initial price surge, the more significant factor was the liquidation of short positions.

Because Bitcoin had been trading in a range for some time and the broader market conditions indicated it had another price drop ahead, many people took out short positions. These trades become profitable as the price decreases, so when it surged in value, over $180 million of short positions were liquidated.

This situation is the reverse of a leverage cascade that causes prices to drop significantly as more long positions become liquidated. This drives the price lower and causes yet more long positions to be liquidated, and the price cascades downwards.

While many thought this marked the beginning of a new bull run, a key driver of bull markets was missing — capital inflows. Some price movement was caused by speculation about an ETF approval, and liquidations caused the rest. Notably, there needed to be more capital entering the market, instead, people moved into Bitcoin from stablecoins and altcoins.

The last bull market in crypto occurred in 2020, and easy access to cheap money helped drive prices upwards. People had surplus funds during the lockdowns, thanks to government bailouts and historically low interest rates. Coupled with the desire to generate income from the confines of their homes, this flow of new money into the crypto market caused prices to skyrocket.

Though the prospect of interest rates returning to 2020 levels is highly improbable, there still needs to be a compelling reason to attract fresh funds into the market to bolster liquidity and push prices upwards. For that money to come from retail rather than institutional investors, they have to feel confident in their future economic conditions, which is why the macroeconomic picture is still so crucial for crypto.

Should inflation persist at elevated levels, central banks will likely resist reducing interest rates, opting to steer their economies toward recession and job losses. In such uncertain times, people tend to hold onto cash reserves rather than speculating with them.

A more favorable global economic outlook would hinge on resolving the Ukraine conflict, de-escalating trade tensions between the U.S. and China, and restoring stability to supply chains. Essentially, the greater the peace and stability in the world, the healthier economies become and the more secure people feel about their employment prospects.

While these factors also impact institutional investors, their influence is less pronounced than retail investors, who are often swayed by emotions rather than rationale. This is why approving a spot Bitcoin ETF in the U.S. will likely trigger a mini-bull market. Still, without retail investors jumping into the market, it’s unlikely to be the full-scale bull run everyone is patiently waiting for.