Raoul Pal, the founder of Global Macro Investor, has recently captured attention with insights into the relationship between Bitcoin (BTC) and global M2 money supply. A chart he shared indicates a notable correlation that suggests Bitcoin movements typically follow changes in the M2 money supply with a 12-week lag. This pattern, established since early 2023, hinted that Bitcoin might approach $200,000 by the end of 2025, assuming this correlation remained intact.
However, this alignment broke down after July 16, as Bitcoin’s price has stagnated while global M2 continues to rise, highlighting a significant divergence. Pal attributes this shift to actions by the U.S. Treasury regarding its Treasury General Account (TGA). The TGA, which serves as the government’s operating account at the Federal Reserve, plays a key role in liquidity levels. When the Treasury increases bond issuance to bolster this account, it drains liquidity from the economy, creating a tighter environment for risk assets like cryptocurrencies.
“Since July, the Treasury has injected approximately $500 billion into the TGA, pushing its balance to a multi-year high of around $800 billion,” Pal notes. This liquidity drain has particularly affected Bitcoin, causing its current price stagnation despite the upward trend in M2.
Interestingly, while Bitcoin struggles, other asset classes such as tech stocks and gold continue to reach new heights, suggesting that the broader market remains resilient in its risk appetite. This suggests that factors beyond just Treasury actions, including potential selling pressure from long-held Bitcoin positions, might also be influencing the cryptocurrency’s performance.
According to Pal, with the TGA now sufficiently replenished, the liquidity challenges faced by Bitcoin could ease, allowing potential normalization of market conditions by the end of the month. If this occurs, Bitcoin might reclaim its trajectory in line with M2’s movements, renewing optimism in the cryptocurrency landscape.
Impact of Global M2 Money Supply on Bitcoin Movements
The relationship between bitcoin’s price movements and the global M2 money supply has significant implications for investors and the cryptocurrency market.
- Correlation with Global M2 Money Supply
- Bitcoin historically tracks the global M2 money supply with a 12-week lag.
- This indicates that liquidity changes affect bitcoin prices after a delay of approximately three months.
- Current Market Dynamics
- Despite rising global M2, bitcoin’s price has stagnated since July 16, pointing to a breakdown in the correlation.
- The stagnation coincides with significant actions by the U.S. Treasury affecting liquidity.
- Treasury General Account (TGA) Impact
- The U.S. Treasury’s actions to replenish the TGA have drained liquidity, impacting risk-sensitive assets like bitcoin.
- About $500 billion in bonds issued since July has significantly affected market liquidity.
- Future Outlook for Bitcoin
- Pal suggests that liquidity conditions may normalize by the end of the month, potentially resuming bitcoin’s upward trajectory toward $200,000 by the end of 2025.
- Observers should monitor the TGA to assess future liquidity conditions and their effect on bitcoin and crypto markets.
- Broader Market Context
- Despite crypto struggles, tech stocks and gold have reached new highs, indicating that risk appetite might still be strong.
- The impact on bitcoin may also relate to selling pressure from holders of long-term coins.
The Bitcoin-M2 Money Supply Connection: A Comparative Analysis
Recent insights from Raoul Pal, founder of Global Macro Investor, have spotlighted the fascinating dynamics between bitcoin price movements and the global M2 money supply. Since early 2023, bitcoin’s correlation with M2 has been evident, with a consistent 12-week lag suggesting that liquidity conditions exert a delayed influence on crypto markets. However, notable shifts since mid-July have fractured this relationship, creating a compelling narrative for investors.
Competitive Advantages: Pal’s analysis presents a strong case for a future bitcoin surge, predicting it could reach $200,000 by the end of 2025 if historical patterns hold. This forecast provides a strategic roadmap for crypto investors looking for potential upward trends in a market often characterized by volatility. Furthermore, Pal argues that the recent stagnation isn’t a failure of the model but rather a temporary disruption caused by governmental actions, particularly the U.S. Treasury’s decision to bolster its Treasury General Account (TGA). His interpretation offers hope for a normalization of liquidity, which could reignite bitcoin’s bullish trajectory.
Competitive Disadvantages: Nonetheless, not all is promising in this bitcoin narrative. The decoupling from M2 suggests that external factors are influencing crypto more heavily than anticipated, raising concerns about the stability of this asset class. Additionally, while Pal asserts that the liquidity drain is nearing its end, the ongoing strength of tech stocks and gold paints a picture of a resilient risk appetite that seems to bypass bitcoin, indicating a potential diminishing interest among investors in cryptocurrencies.
This evolving landscape poses unique challenges and opportunities. Crypto traders and long-term holders may benefit from the anticipated normalization of liquidity if Pal’s hypothesis proves correct. However, the recent trend of heavy selling from long-held coins indicates that market sentiment may still be wary, possibly deterring new investments. For traditional investors in stocks and commodities, the strong performance of tech shares and gold could signal a robust market divergence, potentially siphoning attention away from bitcoin and similar crypto assets. As the market navigates these complex dynamics, it remains to be seen how investor behavior will shift in response to liquidity changes and external economic indicators.
