Bitcoin (BTC) prices continue to be a focal point as analysts consider its correlation with global M2 money supply.
A notable prediction suggests this pioneering cryptocurrency could be on the brink of a 20–25% correction, in line with the recent contraction in M2 liquidity.
Why Bitcoin Could Face a 25% Correction
Joe Consorti, head of development at Bitcoin custody firm Theya, emphasized Bitcoin's close tracking of global M2 with an approximate 70-day lag since September 2023. In a recent post on X (formerly Twitter), Consorti warned of the potential for BTC to drop 25% as it continues to track global M2.
“I don’t want to alarm anyone, but if this trend continues, Bitcoin could experience a 20-25% correction,” Consorti said.
His analysis places M2 data 70 days ahead of Bitcoin prices, revealing a concerning trend as global liquidity declines. Consorti's observations come against the backdrop of a rare shift away from the M2 trend, which has typically been linked to Bitcoin prices.
The correlation between Bitcoin (orange) and global M2 (white). Source: X/Twitter
He attributes past divergences, such as during the FTX collapse in 2022, to specific market events. Looking back, on September 30, Consorti predicted Bitcoin could reach $90,000 by the end of the year if it continues to reflect M2 trends. That prediction has materialized in BTC's recent surge, reinforcing his credibility.
Another advocate of this correlation, user Joseph Scioscia, reiterated that Bitcoin serves as a reliable proxy for M2 money supply trends. He advised investors to adopt a long-term dollar-cost averaging strategy, emphasizing BTC's historical resilience.
“Bitcoin is the best representation of M2 money supply. Trends in M2 reveal potential directions for BTC, especially with Bitcoin lagging M2 by about 70 days. DCA into Bitcoin and apply a long-term strategy,” Scioscia stated.
However, skepticism remains. An X user named Spicez criticized the focus on short-term data. They argued that a broader five-year chart would provide more insight into Bitcoin's behavior during election cycles and recent post-deflation periods.
“It would be great to see this chart over the past 5 years. That would show us BTC's behavior towards M2 during election cycles and how it acted after the most recent deflation. This two-year chart doesn't tell us much,” Spicez challenged.
The Important Link Between M2 Money Supply and BTC
Global M2 supply measures total liquidity in the economy, including checking accounts, savings accounts, and liquid assets that can quickly be converted to cash. It has become a key driver of Bitcoin's price fluctuations.
Risk assets, including Bitcoin, often correlate with rising liquidity. The relationship between Bitcoin prices and M2 expansion reflects market sentiment and broader economic conditions.
Higher M2 expansion indicates loose monetary policy and an increasing money supply, often driving risk assets like cryptocurrencies. Historically, increases in M2 correspond with bullish trends for Bitcoin as liquidity flows into risk assets. Conversely, declines typically signal upcoming corrections.
In a recent analysis, TinTucBitcoin highlighted this connection, suggesting that global liquidity could help Bitcoin reach $100,000. As reported, factors such as the Bitcoin halving in 2024 and broader macroeconomic recoveries often act as tailwinds for BTC prices.
The growing concern about Bitcoin ETFs (exchange-traded funds), especially from institutions like BlackRock, could backfire against pressures related to M2. The structural buying from ETF funds, along with corporate buybacks, could provide a buffer against sell-offs due to liquidity.
“Bitcoin may bypass this 2-month decline in M2 liquidity thanks to structural inflows from ETFs + buy pressure from companies,” Consorti added.
While Bitcoin prices face potential headwinds from shrinking global liquidity, the market remains divided on its next move. Structural inflows and long-term acceptance strategies may mitigate any downside. However, traders should prepare for volatility as macroeconomic factors unfold this week.
BTC price performance. Source: TinTucBitcoin
Currently, Bitcoin is trading at $94,395. Data from TinTucBitcoin shows it has dropped 3.37% since the third trading session opened.
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