The relationship between Bitcoin price and M2 money supply signals an optimistic Q2.

Global M2 money supply has surged to a record high of $108.4 trillion, raising new questions about the next move for Bitcoin.

This milestone was achieved in the context of increasing economic instability following the new “Liberation Day” tariffs imposed by President Donald Trump and China’s swift retaliatory measures, disrupting global markets.

What is M2 and why is it important for Bitcoin?

Despite significant fluctuations over the past two weeks, the average value of Bitcoin has remained almost unchanged. Analysts suggest that the recent volatility of Bitcoin reflects concerns about macroeconomics and the fluctuating Long/Short trading ratio, yet the largest cryptocurrency has not yet entered a bear market. This is mainly due to the historical correlation between the increase in M2 and the strong price rallies of Bitcoin.

M2 is a broad measure of the money supply of a country or region. It includes cash, demand deposits, and savings accounts, along with other liquid assets that can be quickly converted into cash.

Bitcoin Chart and M2 Money Supply Over the Past Year | Source: BGeometricsWhen M2 increases, it often signals an increase in liquidity in the financial system. It simply means more money is available and is often seeking returns from higher-risk assets such as stocks, real estate, or cryptocurrencies like Bitcoin.

Previous increases in M2 money supply have foreshadowed significant price surges in Bitcoin. Following the economic stimulus programs during the COVID-19 pandemic in 2020-2021, the M2 money supply in the United States increased by more than 25%. This event correlates with Bitcoin’s growth from below $10,000 in mid-2020 to an all-time high of over $69,000 in November 2021. Analysts point to a similar pattern today, although with a certain degree of lag.

“Market supporters argue that Trump’s tax levels are primarily a negotiation strategy and their impact on businesses and consumers will remain manageable. Adding to the uncertainty are inflationary pressures that could challenge the Federal Reserve’s rate cut forecasts. Additionally, addressing the debt ceiling remains an urgent issue, as the U.S. Treasury is currently relying on extraordinary measures to meet the country’s financial obligations. The exact timing of when these measures will run out is still unclear, but analysts predict they could expire after the first quarter,” said Maksym Sakharov, co-founder of WeFi Deobank.

Additionally, the price of Bitcoin often follows global M2 growth by about two months. With M2 accelerating since the end of February and the current increase bringing it to an all-time high, market observers believe that Bitcoin will see a strong price surge, albeit with a delay, if liquidity continues to expand.

However, macro factors may dampen growth in the short term. Trump’s tax shock and China’s retaliatory response have caused Wall Street to suffer its deepest losses in the past 5 years.

Investors may delay allocating capital to high-volatility assets until trade tensions stabilize.

However, with M2 soaring and the supply of Bitcoin being limited, the outlook for a strong price increase continues to exist. This will happen if historical patterns hold true and the market regains confidence.

Disclaimer*: This article is for informational purposes only and is not investment advice. Investors should do thorough research before making any decisions. We are not responsible for your investment decisions*

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Minh Anh

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