In recent months, the relationship between Bitcoin's price movements and the M2 money supply has garnered significant attention from analysts and investors alike. The M2 money supply, which includes cash, demand deposits, and other liquid assets, serves as a key indicator of economic liquidity and has historically influenced the price of Bitcoin.
Current Market Overview
As of November 27, 2024, Bitcoin is trading at approximately $91,988, having recently peaked at $99,571 on November 23.
Analysts are observing a potential correction, with predictions suggesting that Bitcoin could drop to $88,000 or even lower if it continues to follow the trends of the global M2 money supply.
Historical Correlation Between M2 and Bitcoin
The correlation between Bitcoin and the M2 money supply has been noted to have a lag of about 70 days since September 2023, according to analyst Joe Consorti.
Historically, increases in the M2 money supply have coincided with Bitcoin price rallies, as investors often turn to Bitcoin as a hedge against inflation when liquidity increases.
Recent Trends and Predictions
Analysts have warned that Bitcoin could face a 20-25% correction from its recent highs if the current trends continue. This could potentially see Bitcoin retracing towards $70,000.
The recent decline in M2 money supply, attributed to dollar strength, has raised concerns among analysts about its impact on Bitcoin's price. James Check from Glassnode noted that the decline in M2 is effectively "devaluing" the money supply of the rest of the world.
Market Sentiment and Analyst Opinions
Some analysts, like Sam KB, have expressed confusion over the current rally in Bitcoin despite a low M2 supply, questioning the traditional correlation.
Conversely, macroeconomist Lyn Alden highlighted that Bitcoin moves in the direction of global liquidity 83% of the time over any given 12-month period, reinforcing the significance of M2 in predicting Bitcoin's price movements.
Conclusion
The interplay between Bitcoin's price and the M2 money supply remains a critical area of analysis for investors. While historical trends suggest a strong correlation, recent market dynamics and differing analyst opinions indicate that the future trajectory of Bitcoin may not strictly adhere to past patterns. Investors are advised to remain vigilant and consider both macroeconomic factors and market sentiment when making decisions.