Understanding Bitcoin’s Correlation with Global Money Supply
The intricate relationship between Bitcoin’s (BTC) price movements and the global money supply (M2) is attracting significant attention, suggesting potential major corrections as Bitcoin aims for a six-figure valuation.
Bitcoin’s Potential Price Correction
Analysts from the financial commentary platform, The Kobeissi Letter, have observed that this correlation indicates a possible steep drop in Bitcoin’s price, potentially plummeting to $20,000. This represents nearly an 80% decline from its current valuation, as discussed in a recent social media post.
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Historical Patterns and Current Trends
Historically, Bitcoin has shown a delayed correlation with the global money supply, typically lagging by around 10 weeks. This trend aligns with a recent peak in global money supply, which reached a record $108.5 trillion last October before decreasing to $104.4 trillion by December.
Bitcoin’s Price Movements
The decline in money supply coincides with Bitcoin’s recent dip, threatening to push its price below $90,000. According to The Kobeissi Letter, if this pattern holds, Bitcoin’s price could drop to $20,000 in the coming weeks, indicating a potential pause in its bullish momentum.
Possible Outcomes and Market Dynamics
Joe Consorti, head of growth at Bitcoin custody firm Theya, highlighted two possible outcomes for Bitcoin, given its ongoing correlation with global money supply. He suggested that Bitcoin might decouple from this pattern due to strong demand within its ecosystem. However, he cautioned that if the correlation persists, tightening liquidity could lead to a significant mid-cycle correction.
Insights from Market Analysts
Jamie Coutts, chief crypto analyst at Real Vision, underscored the importance of Bitcoin’s correlation with global money supply as a predictor of its future trajectory. He projected that by 2025, the M2 money supply could exceed $127 trillion, driven by economic and monetary factors, with Bitcoin potentially absorbing about 10% of this new liquidity.
Contrasting Opinions in the Market
Not all market participants agree on the significance of the M2 correlation. An influential user, CryptoAnarchyst, argued that the money supply is no longer a critical indicator for Bitcoin’s price movement. The market’s shift from retail-driven to institutional and derivative-led means that traditional liquidity measures like M2 are less relevant.
Understanding the Correlation Between Global Money Supply and Risk Assets
The global M2 supply represents total liquidity in the economy, encompassing assets like checking and savings accounts that can be readily converted into cash. When global liquidity expands, central banks often inject more money into the economy through methods like lowering interest rates or quantitative easing, which can boost investments in risk assets like Bitcoin.
Conversely, when liquidity contracts, risk assets such as Bitcoin typically face downward pressure. Bitcoin’s fixed supply makes it an attractive alternative to traditional central bank systems, further linking its price movements to changes in global liquidity.
Current Bitcoin Price Analysis
As of the latest data, Bitcoin is trading at $97,013, experiencing daily losses of over 1% and a weekly decline of more than 5%. Despite this, Bitcoin’s technical analysis suggests bullish sentiment in both the long and short term, as it trades above key moving averages.
Technical Indicators and Future Prospects
Bitcoin is currently trading above the 50-day simple moving average (SMA) of $91,748 and the 200-day SMA of $70,040. Looking forward, Bitcoin is facing significant resistance at $100,000, with $95,000 serving as a critical support level in the short term.
