The 15% correction in Bitcoin during the third week of December is the largest weekly price drop since August. Experts attribute it to the influence of global macroeconomic factors, warning that if these pressures intensify, Bitcoin may decline further.
However, Bitcoin also has internal factors to offset macro negative impacts.
Global liquidity has significantly decreased in the past two months.
According to The Kobeissi Letter, the price of Bitcoin has historically shown a 10-week lag correlation with the global money supply (global M2). In the past two months, global M2 has decreased by $4.1 trillion, suggesting that if this trend continues, Bitcoin's price may further decline.
Global M2 is a key economic indicator that measures the total supply of cash, demand deposits (M1), time deposits, and other liquid assets in the global economy. Fluctuations in global M2 typically affect the stock and cryptocurrency markets.
"With global money supply reaching a new high of $10.85 trillion in October, Bitcoin's price hit an all-time high of $108,000. However, in the past two months, the money supply has dropped by $4.1 trillion to $10.44 trillion, its lowest since August. If this relationship holds, it suggests that Bitcoin's price may drop by $20,000 in the coming weeks." – The Kobeissi Letter forecast.
Bitcoin price and global money supply.
A month ago, Joe Consorti, the growth lead at Bitcoin custody firm Theya, warned that based on similar indicators, Bitcoin could see a 20%-25% correction. This forecast appears to be materializing.
Bitwise Research Director André Dragosch shares a similar view. He expects that due to tightening liquidity in the U.S., BTC will continue to face pressure. However, he emphasizes that an internal Bitcoin factor may offset this liquidity squeeze: the continuously increasing illiquid supply of Bitcoin.
Bitcoin price and illiquid supply.
A higher illiquid supply indicates an increase in Bitcoin's scarcity, which may support its price under supply and demand dynamics.
"Bitcoin is currently balancing a) the macro headwinds from the decline in U.S. and global liquidity, and b) the ongoing on-chain tailwinds from the BTC supply deficit. Ultimately, the bullish on-chain factors may outweigh the bearish macro factors, but this could create some volatility (and potentially some attractive buying opportunities) in early 2025." – André Dragosch comments.
At the time of writing, BTC is trading at around $95,333, having fallen nearly 6% over the weekend.
[Disclaimer] The market carries risks, and investment should be approached with caution. This article does not constitute investment advice, and users should consider whether any opinions, views, or conclusions presented herein align with their specific circumstances. Investment based on this is at one's own risk.