The price movement of Bitcoin (BTC) continues to attract attention as it is analyzed in relation to the correlation with global M2 money supply.
According to notable predictions, the pioneering cryptocurrency may be on the threshold of a 20-25% correction, coinciding with the recent contraction in M2 liquidity.
Bitcoin Exhibits a 70-Day Lagging Tendency to Global M2 Data
Joe Consorti, the Growth Lead at the Bitcoin custodian Theya, emphasized that Bitcoin has been closely tracking global M2 with an approximate 70-day lag since September 2023. In a recent X (formerly Twitter) post, Consorti warned that Bitcoin could potentially decline by 25% as it continues to track global M2.
"I don't want to surprise anyone, but if this trend continues, Bitcoin could experience a 20-25% correction." – Joe Consorti said.
His analysis reveals a concerning trajectory by setting the M2 data 70 days ahead of Bitcoin prices, as global liquidity tightens. Consorti's observation came amid rare deviations from the historical trend of Bitcoin prices aligning with M2 trends.
He attributes past divergences, such as the FTX collapse in 2022, to market-specific events. Consorti had predicted on September 30th that Bitcoin could reach $90,000 by the end of the year if it continues to reflect the M2 trend, which has been realized accurately during the recent BTC rally, bolstering his credibility.
Another proponent of this correlation, user Joseph Scioscia, reiterated that Bitcoin serves as a reliable proxy for the M2 money supply trend. He advised investors to adopt a long-term dollar-cost averaging (DCA) strategy, citing Bitcoin's historical resilience.
"Bitcoin is the best proxy for M2 money supply. The trend in M2 reveals the potential direction of BTC, especially as Bitcoin lags M2 by about 70 days. DCA into Bitcoin and adopt a long-term strategy." – Joseph Scioscia said.
However, skepticism remains. X user Spicez criticized the focus on short-term data, arguing that a broader 5-year chart would provide more insight into Bitcoin's behavior during election cycles and after halving events.
"It would be good to look at the chart over the past 5 years. This will show Bitcoin's behavior in relation to M2 during election cycles and after the last halving. This 2-year chart doesn't tell us much." – Spicez challenged.
The Crucial Link Between M2 Money and BTC
Global M2 supply measures the total liquidity within the economy, including demand deposits, savings accounts, and other readily convertible liquid assets. This has been a key driver of Bitcoin price movements.
Risk assets, including Bitcoin, generally exhibit correlation when liquidity increases. The relationship between Bitcoin prices and M2 expansion reflects broader market sentiment and economic conditions.
Higher M2 expansion indicates loose monetary policy and increased money supply, often buoying risk assets like cryptocurrencies. Historically, M2 growth has coincided with bullish trends in Bitcoin as liquidity flows into risk assets. Conversely, declines often signal impending corrections.
Recent analysis by BeInCrypto has reflected this connection, suggesting that global liquidity could help Bitcoin reach $100,000. As reported, factors such as the 2024 Bitcoin halving and a broader macroeconomic recovery often act as tailwinds for BTC prices.
Interest in Bitcoin ETFs is growing, and institutional interest, particularly from firms like BlackRock, could offset M2-related pressures. The structural buying of ETFs and corporate acquisitions could act as a buffer against liquidity-driven sell-offs.
"Bitcoin can overcome this 2-month M2 deflation thanks to the structural inflow of ETFs and corporate buying pressure." – Joe Consorti added.
Bitcoin prices face potential headwinds from the global liquidity contraction, but the market is divided on the next move. Structural inflows and long-term adoption strategies could mitigate the downside. However, traders should brace for volatility as macroeconomic factors unfold this week.
At the time of writing, Bitcoin is trading at $90,453.95. According to BeInCrypto data, it has declined by 3.37% since the start of the Tuesday session.
