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Cryptocurrency News Articles
Global M2 and Bitcoin: What Does the New Data Tell Us?
Sep 23, 2024 at 01:18 am
Historically, global M2 and Bitcoin have often moved in sync, but will this relationship hold in the current market cycle?
Global liquidity, as measured by the Global M2 index, reached a new all-time high (ATH) on Sept. 20. However, Bitcoin price has failed to follow this upward trend, leaving many crypto investors wondering what this divergence could mean for BTC's price.
According to Bitcoin Magazine, the Global M2 index rose to $96 trillion on Monday, continuing a trend that began in late 2021. The index, which tracks the total money supply managed by the 21 largest central banks, is often used to gauge how quickly money is being printed.
Many crypto investors believe that global M2 and Bitcoin price traditionally track each other closely. However, the current market cycle is showing a potential divergence between the two assets.
Bitcoin price has risen by 16.2% over the past two weeks. However, the BTC price has failed to follow the upward trend in global liquidity, which reached a new ATH on Monday, Sept. 20.
The Global M2 index is a measure of the total money supply managed by the 21 largest central banks. This data is often used to gauge how quickly money is being printed, and it reached a new record high on Monday.
However, while global M2 is at a record high, Bitcoin's price hasn't followed this upward trend. This is leaving many crypto investors wondering why the two assets are diverging in the current market.
According to analysis by Crypto, Distilled, the lack of correlation between global M2 and Bitcoin price may be due to limited liquidity in the crypto market. Many investors are opting for safer assets, which could be impacting BTC's price.
One indicator that supports this view is the rise in stablecoins since late summer, which hints that investors are acting more cautiously in the current climate.
3/ Reflecting this risk-off mindset, stablecoin dominance has been rising since August.
Investors are seeking shelter in stable assets amid macro uncertainty.
Stablecoins dominate trading pairs, acting as a proxy for investor demand. pic.twitter.com/omBErX8Jvl
— Crypto, Distilled (@DistilledCrypto) September 19, 2024
Crypto, Distilled also points out that the gold demand index, which reflects demand for the precious metal, is moving in sync with global M2. This suggests that liquidity is being directed toward safer investments.
6/ Meanwhile, gold shows a strong correlation with M2, reinforcing its role as a recession hedge.
As money supply rises, so does gold demand, cementing its safe-haven status.
In August, gold rallied amid recession fears while risk-on assets faltered. pic.twitter.com/5TAPHo0rDP
— Crypto, Distilled (@DistilledCrypto) September 19, 2024
Another perspective comes from analyst Mads Eberhardt, who compared U.S. dollar liquidity with Bitcoin's price. While the two assets were correlated in the past, BTC's launch in February broke the trend.
U.S. Dollar Liquidity and Bitcoin.
The only significant divergence this year occurred with the U.S. ETF launch in January. Other than that, U.S. liquidity leads Bitcoin.
Guess what happens starting in October. pic.twitter.com/cm5p1ffTri
— Mads Eberhardt (@MadsEberhardt) September 17, 2024
Eberhardt predicts that U.S. dollar liquidity could fall in September, which might negatively impact Bitcoin's price.
Despite the diverging trends, Bitcoin has risen by 16.2% over the past two weeks, according to CoinGecko. BTC recently reclaimed the $60,000 level, outperforming濤二濤 濤二濤, which has yet to fully recover from the August market crash.
The Bitcoin price history over the past month. Source: CoinGecko
As always, do your own research before making any trades.
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