Bitcoin has dropped back from its all-time high of over $100,000 in the last week as BlackRock quietly confirmed a worrying bitcoin bombshell.
Now, as Donald Trump confirms he has huge plans for bitcoin, a financial analyst has warned a $4.1 trillion drop in the global money supply could be about to trigger a bitcoin price crash of $20,000.
"In the past, bitcoin prices have followed global money supply with ~10 week lag," analysts with The Kobeissi Letter posted to X, asking: "Is bitcoin overdue for a correction?"
Kobeissi analysts pointed to the money supply dropping by $4.1 trillion, to $104.4 trillion, the lowest since August, after hitting a peak of $108.5 trillion in October.
"If the relationship still holds, this suggests that bitcoin prices could fall as much as $20,000 over the next few weeks. Bitcoin's red hot run may take a pause."
The Federal Reserve, which controls the money supply through monetary policy, has been fighting to keep a lid on inflation this year while also attempting to bring down interest rates to prevent the economy falling into recession.
Last week, the Fed cut interest rates by a well-telegraphed 25 basis points despite prices beginning to rise again but signaled it will move more slowly along next year's expected path of rate cuts.
The Fed's "economic outlook and chair Powell's press conference suggested that inflation is going to be stickier than previously thought. This means that they will proceed with the current rate cut cycle slowly and with caution to inflation, which seems to be re-accelerating for the past couple of months," Yuya Hasegawa, bitcoin and crypto market analyst with Tokyo-based Bitbank, said in emailed comments.
"There also is a chance for Fed to stop cutting rates sometime during 2025 if inflation becomes too hot, and in the worst case scenario, they might start raising again. Monetary easing has almost always favored the price of bitcoin, and the opposite has negative impact on the price."
U.S. debt has soared over recent years, topping $34 trillion at the beginning of 2024, with Covid and lockdown stimulus measures contributing to massive government spending and helping to send inflation spiraling out of control in 2022.
Inflation of over 10% forced the Federal Reserve to hike interest rates at a historical clip, pushing up debt interest payments and fueling fears of a "death spiral."
"While Fed's potential policy shift will likely put pressure on bitcoin, high interest rates will keep pressure on the government's debt payments as well," Hasegawa said.
"The ballooning Federal government debt is already raising the question about its sustainability and the government's credibility could gradually become one of the topics that the market will pay attention to in 2025."