Bitcoin and M2: Unraveling the Connection
The cryptocurrency market has seen continued declines over the past 24 hours, with Bitcoin dipping below $67,000. The total market capitalization stands at a substantial $1.3 trillion, and projections for 2024 hint at an impressive nearly 60% return. Despite recent volatility, the overall market environment remains constructive, both from a technical and fundamental standpoint. As the U.S. presidential election approaches, high levels of volatility are anticipated, with a definitive breakout likely only occurring post-election.
Analyzing Bitcoin’s fluctuating value in relation to economic factors.
A key driver for Bitcoin’s long-term performance is the monetary liquidity available, which directly correlates with Bitcoin’s price movements. A leading analyst has pointed out the link between the M2 money supply and Bitcoin, predicting a bullish trend in the coming years as Bitcoin could continue to appreciate in value over the next 18 months. What lies behind this assessment?
M2 Money Supply and Bitcoin’s Potential
The M2 money supply encompasses all physical cash and demand deposits (as included in M1), alongside short-term deposits, savings accounts, and money market funds. This metric effectively measures the amount of money circulating within an economy that can be used for transactions or investments.
Several crucial data points emerge when examining this cycle:
- From 2016 to 2017, the M2 supply steadily increased, providing support for the bull market.
- A significant increase in the M2 supply was observed in 2021.
The crypto analyst, Michael van de Poppe, emphasizes the connection between M2 metrics and Bitcoin price cycles. He points out that the continuous rise in M2 from 2016 to 2017 bolstered the bull market leading into late 2017.
In 2021, although the M2 supply surged, it took time for Bitcoin to respond to this influx of liquidity. External factors, including the FTX scandal and interest rate hikes, slowed market momentum.
“Historically, expansions in the M2 money supply lead to increased investments, which may propel Bitcoin upward once again.”
Conclusion
The analyst posits that continued growth of the M2 money supply until mid-2026 could sustain market liquidity, potentially extending the current cycle. Moreover, this monetary expansion may lead to heightened investment activities, hinting at a looming bull market that could prompt a significant and prolonged reevaluation of BTC’s value.
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Disclaimer: Investing in cryptocurrencies is speculative and involves risk to your capital.
