Bitcoin ($BTC ) fell 15% in the third week of December, marking its biggest weekly decline since August. Experts attributed the decline to the impact of global macroeconomic factors, warning that Bitcoin could continue to decline if these pressures increase.
However, Bitcoin also has intrinsic factors to balance the negative impact from the macro economy.
Global liquidity has fallen sharply in the past two months
According to The Kobeissi Letter, Bitcoin’s price has historically shown a 10-week lag in correlation with the Global Money Supply (Global M2). Over the past two months, Global M2 has decreased by $4.1 trillion, signaling the possibility that Bitcoin’s price could continue to decline if this trend continues.
Global M2 is a key economic indicator that measures the total money supply in the global economy, including cash, demand deposits (M1), time deposits, and other liquid assets. Movements in Global M2 often affect both the stock and cryptocurrency markets.
“When the global money supply hit a new record of $108.5 trillion in October, the Bitcoin price hit an all-time high of $108,000. However, over the past two months, the money supply has fallen by $4.1 trillion to $104.4 trillion, the lowest level since August. If this relationship holds, this suggests that the Bitcoin price could fall as low as $20,000 in the coming weeks.”
A month ago, Joe Consorti, Head of Growth at Bitcoin custody firm Theya, warned of a 20%-25% correction in Bitcoin based on similar metrics. That prediction appears to be coming true.
André Dragosch, Head of Research at Bitwise, echoed the same sentiment. He predicted that Bitcoin would continue to be pressured by tightening liquidity in the United States. However, he highlighted an intrinsic factor in Bitcoin that could counterbalance this liquidity squeeze: Bitcoin’s growing illiquid supply.
Higher illiquid supply indicates increased scarcity of Bitcoin, which can support its price according to supply-demand dynamics.
“Bitcoin is currently balancing between a) rising macro headwinds due to the US and global liquidity crunch and b) on-chain tailwinds due to the strong BTC supply shortage. Ultimately, the on-chain tailwinds will likely outweigh the negative macro headwinds but this could create some volatility in early 2025 (and possibly some attractive buying opportunities).”
At the time of writing, Bitcoin is trading around $94,000, with data from BeInCrypto showing it has dropped nearly 6% over the weekend.