Global M2 money supply is at an all-time high — so why isn't Bitcoin surging?

Markets are heading into the Federal Reserve's Mar. 18-19 meeting with mounting uncertainty as economic conditions remain volatile.

Global M2 money supply reached a new all-time high of $108.2 trillion in March 2024, rising 3.5% from its 2024 low of $104.5 trillion reached on January 6.

However, despite this surge in liquidity, Bitcoin’s price action has shown inconsistencies, sparking questions about a potential delayed response to the changing global liquidity landscape.

M2 money supply serves as a broad measure of global liquidity, encompassing cash, checking deposits, and easily convertible near-money assets.

As M2 expands, liquidity typically flows into high-yielding investments, driving up prices in stocks, commodities, and Bitcoin. Conversely, contractions in M2 are often associated with risk-off periods, where assets struggle to gain upside momentum.

A closer look at historical data reveals a strong correlation between Bitcoin’s price and M2 growth.

Bitcoin’s most significant bull runs have coincided with periods of rapid liquidity expansion, while downturns in M2 have typically preceded declines in Bitcoin’s price or prolonged consolidations.

However, a key observation is that Bitcoin does not react immediately to changes in liquidity. Research suggests an average lag of around 10 weeks for Bitcoin to fully reflect variations in M2 growth.

The above chart further supports this narrative. Bitcoin’s recovery from its 2022-2023 lows coincided with a substantial increase in M2 growth.

Similarly, in mid-2024, renewed expansion in M2 followed by Bitcoin reaching new highs.

But in early 2025, Bitcoin entered a period of consolidation despite M2 continuing its ascent. The missing ingredient appears to be the rate of change in liquidity rather than its absolute level.

A deeper analysis of Bitcoin’s year-on-year returns relative to the YoY change in M2 reveals a clearer pattern – Bitcoin’s strongest bull runs tend to emerge when we observe rapid acceleration in liquidity growth.

Hence, mere liquidity expansion isn’t enough to trigger a breakout – acceleration in M2 growth seems to be the critical factor.

The Federal Reserve’s quantitative tightening (QT) program, which began in June 2022, may be approaching its final stages.

As of March 18, over $6.2 million has been wagered on Polymarket, with traders assigning a 100% probability that the Fed will end QT by April 30.

At its core, QT is the opposite of quantitative easing (QE). Instead of injecting liquidity into the system by purchasing bonds, the Fed has been allowing assets to mature off its balance sheet, effectively pulling money out of circulation.

This policy, alongside aggressive rate hikes, helped curb inflationary pressures but also created liquidity constraints that have weighed on markets. While stocks and crypto assets managed to rally despite QT’s tightening effects, concerns have emerged that continued balance sheet reduction could drain liquidity at a time of rising economic uncertainty.

The minutes from the January FOMC meeting revealed that several policymakers were open to either slowing or pausing QT, largely due to uncertainties surrounding the federal debt ceiling and evolving money market conditions, according to a report by Reuters.

Analysts note that the Treasury Department’s extraordinary measures to keep government operations funded have been injecting temporary liquidity into the system.

This has made it harder for the Fed to accurately assess true reserve levels, creating a risk that it could withdraw too much liquidity too quickly, ultimately increasing financial market volatility.

Despite rising expectations of a near-term end to QT, not all analysts agree on the timing.

Barclays maintains its projection that QT will conclude between September and October, arguing that pausing in March or May only to later restart reductions would be inefficient.

Meanwhile, Wrightson ICAP analysts believe the Fed is more likely to slow the pace of asset runoffs rather than halt them entirely, noting that a full stop could force the Fed to resume asset purchases later, creating communication difficulties for policymakers.

Other economists, like research firm LH Meyer, caution that any pause in QT could risk turning into a full stop, as resuming the process later could prove difficult—especially if market conditions deteriorate further.

The Fed’s ability to gauge the right stopping point has been complicated by mixed signals from liquidity indicators.

A survey of major banks and money managers conducted before the last policy meeting suggested QT could conclude between June and July.

Fed holdings, which have already declined to $6.8 trillion from a peak of $9 trillion in 2022, are expected to fall further to around $6.4 trillion by the time the process ends.

However, estimates suggest that bank reserves will only dip slightly to $3.125 trillion from the current $3.3 trillion, while the Fed’s reverse repo facility—a measure of excess liquidity—has remained below $100 billion throughout February, indicating that financial conditions may already be tighter than intended.

Historically, unwinding