Bitcoin (BTC) is signaling a significant downward trend, closely tied to the global money supply (M2). Some analysts predict that the price of BTC could drop sharply by up to 80%, potentially hitting $20,000 in a few weeks. This could pose a major challenge to Bitcoin's six-figure pricing path.

The Correlation Between Bitcoin and Money Supply

Historically, Bitcoin's price has shown a close relationship with the trend of global money supply (M2). According to The Kobeissi Letter, this correlation often manifests with a 10-week lag. For example, in October, the global money supply peaked at $108.5 trillion but fell to $104.4 trillion in December, the lowest since August. This decline coincided with a drop in Bitcoin's price.

The Kobeissi Letter predicts that BTC's price will experience a significant correction, emphasizing the important role of this correlation in understanding Bitcoin's price volatility. They state:

"If liquidity continues to decline, Bitcoin's price may face significant pressure, potentially leading to a sharp correction."

Potential Results of Correlation

Joe Consorti highlights two possible scenarios regarding Bitcoin's relationship with the global money supply. In the first scenario, Bitcoin decouples from the correlation due to high demand within its ecosystem, leading to an independent price surge. On the other hand, if liquidity remains tight, a major correction could occur.

Jamie Coutts also emphasizes the impact of money supply on Bitcoin. Coutts predicts that the global money supply could reach $127 trillion by 2025. He believes Bitcoin could capture 10% of this new liquidity, leading to significant growth. While this scenario presents considerable opportunities, it also carries risks for BTC investors.

Diverging Market Dynamics and Alternative Perspectives

Some analysts argue that the relationship between money supply and Bitcoin is losing relevance. For example, CryptoAnarchyst notes that the market is currently more influenced by institutional investors and ETFs. Therefore, traditional liquidity metrics may no longer be as predictive as before.

The global money supply remains an important indicator of overall liquidity in the economy. Historically, increased liquidity has driven investors towards riskier assets. Conversely, during periods of tightening liquidity, assets like Bitcoin often tend to decline. This dynamic continues to play a crucial role in Bitcoin's market behavior.

Technical Outlook for Bitcoin

From a technical perspective, Bitcoin shows potential for price increases in both the short and long term. Currently trading above the 50-day simple moving average (SMA) at $91,748 and the 200-day SMA at $70,040, BTC indicates resilience. Key support lies at $95,000, while $100,000 serves as a crucial resistance level. Breaking these levels could pave the way for new record highs.

DYOR! #Write2Win #Write&Earn $BTC