Bitcoin’s Connection to Global M2 Resurfaces as Key Market Factor
Bitcoin’s close linkage with the global M2 money supply has once again captured attention, indicating that overarching monetary conditions play a significant role in determining the cryptocurrency’s market direction. Recent trends reveal that Bitcoin’s price movements are closely aligning with the downward trend of M2, exhibiting a lag of approximately 70 days. This cyclical behavior signifies Bitcoin’s continued sensitivity to liquidity variations, even as other pivotal developments—such as the recently announced US Strategic Bitcoin Reserve (SBR)—dominate the news cycle.
### Bitcoin’s Relationship with Global M2 and Market Dynamics
In a recent analysis, expert Joe Consorti pointed out that Bitcoin’s correlation with global M2 has intensified, suggesting that its price is significantly influenced by trends in money supply. Following a period of divergence—largely attributed to the strength of the US dollar—Bitcoin’s value dipped to $78,000, nearing a mere $8,000 from M2’s expected trajectory. The global M2 index has weakened, reflecting the dollar’s robust performance; however, Bitcoin seems to be adhering to the liquidity patterns it has followed throughout this economic cycle, indicating that its value still relies on major macroeconomic influences, including actions taken by central banks. Consorti emphasizes that while this correlation is not strictly causal, it offers a valuable overarching framework for understanding the market.
Consorti further elaborated, stating, “The key takeaway is that Bitcoin continues to represent a leading monetary asset in an environment where the money supply, balance sheet size, and credit availability are in constant expansion. As the global money supply grows, Bitcoin generally mirrors this trend, at least in terms of direction. Nonetheless, this cycle is characterized by additional factors that make M2 less of a reliable standalone metric, such as the historically strong US dollar, which negatively impacts global M2 when denominated in USD, alongside the emergence of more precise measurements of money supply and liquidity.”
### Market Response to SBR Announcement Raises Questions
Despite the familiar pressures arising from macroeconomic conditions, the market’s reaction to the SBR announcement has been puzzling. Following President Donald Trump’s official declaration of plans to amass Bitcoin via a “budget-neutral” approach, the cryptocurrency’s price plummeted by 8.5% in less than a week. Consorti described this sell-off as “an irrational reaction that underscores significant inefficiencies in the market’s pricing of Bitcoin’s geopolitical significance.”
Executive Order 14233 requires Treasury and Commerce officials to increase the nation’s Bitcoin holdings—currently at 198,109 BTC—without incurring new taxpayer expenses or requiring congressional approval. This approach notably contrasts with earlier government-sanctioned initiatives, such as El Salvador’s adoption of Bitcoin as legal tender, which corresponded with a price surge. Consorti attributes this disparity to short-term profit-taking behavior and a “sell-the-news” mentality, suggesting that the severity of the sell-off reflects a fundamental mispricing of long-term implications.
### Technical Indicators Suggest Potential Reversal for Bitcoin
Despite the downturn associated with the SBR, Bitcoin’s technical indicators hint at the possibility of a local bottom being established. The price fell to $77,000 before rebounding, effectively filling a low-volume gap within the $76,000 to $86,000 range. This retracement prompted buyers to take action, resulting in the formation of two hammer candlesticks on the weekly chart.
Hammer candlesticks are typically indicative of a reversal, particularly when they emerge at critical support levels within a cycle. Consorti noted, “Historical patterns suggest that Bitcoin tends to form these candlestick patterns at pivotal turning points… The last occurrence of this specific price structure was at the conclusion of Bitcoin’s summer 2024 consolidation, shortly before it surged from $57,000 to $108,000.”
### Bitcoin’s Dominance Grows Amid Market Adjustments
Amid these price movements, a notable trend is the increasing dominance of Bitcoin, even during market downturns. The ETH/BTC ratio recently fell to 0.0227, marking its lowest level since May 2020, which suggests growing skepticism towards altcoins. Additionally, institutional interest in Ethereum has diminished, as indicated by a significant 56.8% decrease in the asset under management (AUM) ratio when compared to Bitcoin.
“This cycle belongs to Bitcoin, and future cycles will only solidify this truth,” Consorti asserts. He posits that altcoins are facing considerable challenges as narratives centered around Bitcoin gain momentum on a global scale. At the time of reporting, Bitcoin was trading at $82,875.
