Bitcoin Price Could Drop $20,000 as Global Money Supply Shrinks

Bitcoin (BTC) has decreased by 15% in the third week of December, marking the largest weekly decline since August. Experts believe this decline is due to the impact of global macroeconomic factors, warning that Bitcoin may continue to decline if these pressures increase.

However, Bitcoin also has inherent factors to balance the negative impact from macroeconomics.

Global liquidity has declined sharply in the past two months

According to The Kobeissi Letter, Bitcoin's historical price has shown a 10-week lagging correlation with Global M2. Over the past two months, Global M2 has decreased by $4.1 trillion, signaling the potential for Bitcoin's price to continue declining if this trend persists.

Global M2 is an important economic indicator that measures the total money supply in the global economy, including cash, demand deposits (M1), time deposits, and other liquid assets. Fluctuations in Global M2 often impact both the stock and cryptocurrency markets.

"When global money supply reached a new record high of $108.5 trillion in October, Bitcoin's price reached an ATH of $68,000. However, over the past 2 months, the money supply has decreased by $4.1 trillion to $104.4 trillion, the lowest level since August. If this relationship holds, this suggests Bitcoin's price could drop to $20,000 in the coming weeks."

The Kobeissi Letter predicted.

A month ago, Joe Consorti, Head of Development at Bitcoin custodian Theya, warned about the potential for a 20%-25% correction in Bitcoin based on similar indicators. This forecast appears to be materializing.

André Dragosch, Head of Research at Bitwise, also holds a similar view. He predicts that Bitcoin will continue to face pressure due to tightening liquidity in the US. However, he emphasizes a fundamental factor of Bitcoin that could balance this liquidity tightening: the increasing illiquid supply of Bitcoin.

The higher illiquid supply indicates an increasing scarcity of Bitcoin, which could support its price through the supply-demand dynamic.

"Bitcoin is currently balancing between a) increasing macroeconomic headwinds due to liquidity decline in the US and globally and b) favorable on-chain factors due to a strong BTC supply shortage. Ultimately, the on-chain tailwinds may overcome the negative macro factors, but this could create some volatility in early 2025 (and potentially some attractive buying opportunities)."

André Dragosch commented.

At the time of writing, Bitcoin is trading around $94,000, with data from BeInCrypto showing it has declined nearly 6% over the weekend.

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