Global M2 and Bitcoin: Will BTC Follow?

Historically, global M2 and Bitcoin have often moved in sync, but will this relationship hold in the current market cycle?

According to Bitcoin Magazine, global liquidity reached its ATH on Sept. 20, with the index rising to $96 trillion. Many crypto investors believe that global M2 and Bitcoin traditionally track each other, yet the current cycle shows a potential divergence.

JUST IN: Global M2 hit an all-time high.

Historically, #Bitcoin price follows pic.twitter.com/6uHDDW2sir

— Bitcoin Magazine (@BitcoinMagazine) September 20, 2024

Global M2 and Bitcoin: What Does the New Data Tell Us?

The Global M2 index reflects the total money supply managed by the 21 largest central banks. This data is often used to gauge how quickly money is being printed. However, while global M2 is at a record high, Bitcoin’s price hasn’t followed this upward trend.

Analysts from Crypto, Distilled suggest that the lack of correlation may be due to limited liquidity in the crypto market, as many investors are opting for safer assets. One indicator supporting this view is the rise in stablecoins since late summer, hinting that investors are acting more cautiously in the current climate.

3/ Reflecting this risk-off mindset, stablecoin dominance has been rising since August.

Investors are seeking shelter in stable assets amid macro uncertainty.

Stablecoins dominate trading pairs, acting as a proxy for investor demand. pic.twitter.com/omBErX8Jvl

— Crypto, Distilled (@DistilledCrypto) September 19, 2024

Why is Global M2 and Bitcoin Out of Sync Right Now?

The gold, a traditionally safe investment, offers some insights. Analysts have noted that the liquidity index and gold’s demand have moved together, suggesting that liquidity is being directed toward safer investments.

According to Crypto, Distilled, crypto liquidity could increase once central banks stop raising interest rates. Until that happens, Bitcoin may continue to lag behind global liquidity trends, as investors remain cautious about venturing into riskier assets.

6/ Meanwhile, gold shows a strong correlation with M2, reinforcing its role as a recession hedge.

As money supply rises, so does gold demand, cementing its safe-haven status.

In August, gold rallied amid recession fears while risk-on assets faltered. pic.twitter.com/5TAPHo0rDP

— Crypto, Distilled (@DistilledCrypto) September 19, 2024

What Can Liquidity Data Tell Us About Bitcoin’s Price?

Analyst Mads Eberhardt compared U.S. dollar liquidity with Bitcoin’s price. He found that, while Bitcoin and dollar liquidity have been correlated in the past, Bitcoin’s controversial launch in February broke the trend. Eberhardt predicts that U.S. dollar liquidity could fall in September, which might negatively impact Bitcoin’s price.

U.S. Dollar Liquidity and Bitcoin.

The only significant divergence this year occurred with the U.S. ETF launch in January. Other than that, U.S. liquidity leads Bitcoin.

Guess what happens starting in October. pic.twitter.com/cm5p1ffTri

— Mads Eberhardt (@MadsEberhardt) September 17, 2024

Nevertheless, Bitcoin has risen by 16.2% over the past two weeks, according to CoinGecko. BTC recently reclaimed the $60,000 level, outperforming Ethereum (ETH), which has yet to fully recover from the August market crash.

The Bitcoin price history over the past month. Source: CoinGecko