Over the past decade, the global money supply has increased by more than $50 trillion, creating a favorable environment for the digital asset market, especially Bitcoin. As a hedge against inflation, Bitcoin has benefited greatly from the dramatic increase in money supply. However, recently, as the global money supply has decreased sharply, Bitcoin has faced many challenges in reaching the $100,000 milestone. This raises the question of whether the trend in global money supply is related to Bitcoin's volatility.
At the beginning of November, Bitcoin opened at $70,062 and reached an all-time high of $99,800 on November 22, up 42.45%. However, after that, Bitcoin's price showed signs of slowing down and slowing down. From November 23 to 26, the market experienced a correction when the price fell more than 7.1%, closing the candle on November 26 at $91,928. As of today, Bitcoin has returned to $95,954, although there are signs of a slight recovery, but it seems that Bitcoin is still not as strong as before.
The M2 Growth YoY indicator plays an important role in reflecting global liquidity levels. The data shows that this indicator has been highly volatile this year:
Beginning of year: 3.19%.
Mid-February: -0.18% (dropped to negative).
March: Up 2.72%.
April: Down again to -0.34%.
From August 5 to September 30: Sharp increase from 4.17% to 7.09%.
Current: 1.83%.
Historically, periods of growth in the M2 index have coincided with increases in Bitcoin prices. For example, from February 12 to March 4, M2 increased from -0.18% to 2.72%, leading Bitcoin to peak at that time at $73,794. Conversely, when M2 declines, Bitcoin often loses momentum.
Global liquidity plays a key role in the Bitcoin market. As the money supply decreases, liquidity decreases, making the market more susceptible to shocks and greater volatility. This was evident in the sharp correction from November 23-26, when the price fell more than 7.1%.
Additionally, low liquidity also reduces the market's ability to recover quickly from corrections, which could make it difficult for Bitcoin to re-establish a strong bullish trend.
During periods of high money supply, Bitcoin is often seen as an inflation-protected asset, attracting strong investment flows. However, as central banks, especially the US Federal Reserve (Fed), tighten monetary policy to control inflation, this role of Bitcoin is challenged. The value of Bitcoin in the context of low money supply will depend more on investor confidence and macroeconomic conditions.
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The connection between global money supply and Bitcoin price is a notable one, but it is not a direct cause-and-effect relationship. Bitcoin price is influenced by a variety of factors, including:
Investor Confidence: Bitcoin's Role as an "Inflation Hedge".
Liquidity: Determines the volatility and resilience of the market.
Monetary policy and macroeconomic conditions: Such as interest rates and inflation.
Going forward, traders and investors need to closely monitor global money supply trends, interest rate movements, and macroeconomic factors to make sound investment decisions. Bitcoin may continue to prove its worth, but only if it adapts to the changing economic environment.
