Bitcoin Loses Correlation With M2 Money Supply, Which Hits ATH

Bitcoin has not tracked global M2 money supply with such a large lag since May, observed the head of growth at Theya, Joe Consorti, on Wednesday.

BTC is now lagging behind money supply growth by around 70 days, whereas gold has maintained an almost perfect correlation.

It is a tale of “cross-asset correlations amid secular dollar weakness and geopolitical risk,” said Consorti, who added, “gold is high beta risk-off, BTC is high beta risk-on.”

Bitcoin has been trading more like a high-risk tech stock rather than a safe haven inflation hedge.

More Liquidity Not Benefitting Bitcoin

Global money supply increases when central banks print

more fiat for monetary easing policies. This increases liquidity in the financial system, which enables more money for allocation to riskier assets such as crypto.

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The M2 money supply is a measure of the total amount of liquid money available in the economy, including cash, checking deposits, savings accounts, and other short-term investments.

It has reached an all-time high in the United States this week of around $22.2 trillion, according to the Atlanta Federal Reserve.

M2 expansion started in early 2024 and has increased by more than 7% since then. It has been described as “relentless debasement baked into the system,” as every new dollar printed dilutes the old ones.

Additionally, the US dollar has weakened significantly this year. The dollar index (DXY) – a measure of the greenback against a basket of currencies – has slumped 12% since the beginning of this year to its lowest level since early 2022 this month.

This should all be gravy for Bitcoin, but the asset has remained sideways for the past three months and is 9% down from its all-time high.

Goldbug Peter Schiff claimed it was already in a bear market, stating that it has dropped 20% against gold since its August peak. What the crypto critic failed to mention is that BTC has gained 78% over the past 12 months, whereas gold is up 42%.

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Bitcoin Price Outlook

BTC closed in on $114,000 during late Wednesday trading but faced resistance there and has fallen back to $111,700 after finding support a little lower at the time of writing.

The asset is down 4.5% over the past week and is holding at a key support level. Without further momentum, the selling pressure is likely to increase, deepening the September correction.

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