Bitcoin (BTC) investors are bracing for potential volatility as analysts highlight a concerning trend: Bitcoin’s price has historically tracked the global M2 money supply with a 70-day lag. Following a recent decline in global liquidity, Bitcoin might experience a 20–25% pullback in the near future.
Joe Consorti, head of growth at Bitcoin custody firm Theya, has been closely monitoring the correlation between Bitcoin and the global M2 money supply, which measures the total liquidity circulating in the economy. Consorti’s analysis shows that Bitcoin has followed the M2 trend with a 70-day delay since September 2023, and this lag could signal a downturn in Bitcoin’s price if the global liquidity contraction continues.
In a recent post, Consorti warned, “I don’t want to alarm anyone, but if this trend continues, Bitcoin could experience a 20–25% correction.” He points to past divergences in Bitcoin’s price movement, like the 2022 FTX collapse, as instances where market-specific events caused temporary misalignments. However, his track record, including his accurate prediction of Bitcoin reaching $90,000 earlier this year, adds weight to his analysis.
Joseph Scioscia, another analyst, echoed Consorti’s view, calling Bitcoin “the best proxy for M2 money supply,” and advised investors to adopt a long-term dollar-cost averaging (DCA) strategy. “Bitcoin’s historical resilience means that DCAing through market cycles is a wise strategy,” Scioscia said.
However, not all analysts agree. Some critics, like the user “Spicez,” argue that short-term charts, like the two-year timeframe Consorti uses, don’t provide the full picture of Bitcoin’s long-term behavior, especially during election cycles and post-halving events.
The global M2 supply includes liquid assets, such as checking and savings accounts, which are easily accessible and quickly converted into cash. Historically, Bitcoin’s price has closely mirrored the movement of M2 liquidity. When M2 expands, the increased money supply typically leads to more liquidity flowing into risk assets like Bitcoin, driving prices higher. Conversely, a contraction in M2 often signals an impending price correction for Bitcoin as liquidity tightens.
A recent analysis from BeInCrypto emphasized that as global liquidity tightens, Bitcoin’s price could face headwinds. However, the increasing institutional interest in Bitcoin, particularly through ETFs and corporate acquisitions, could cushion the impact of any potential M2-driven sell-offs. Consorti himself pointed out, “Bitcoin could buck this 2-month bout of M2 deflation thanks to structural ETF inflows and corporate buying pressure.”
The rising popularity of Bitcoin exchange-traded funds (ETFs), especially with institutional interest from firms like BlackRock, could provide an added layer of support for Bitcoin’s price. These inflows from institutional investors might help mitigate the sell-offs that often accompany global liquidity contractions.
Bitcoin’s growing adoption, combined with the structural buying pressure from ETFs and corporate acquisitions, may prevent the price from experiencing a steep decline, even if the M2 trend points to a pullback.
At the time of writing, Bitcoin is trading at $94,395, having experienced a 3.37% drop since the start of the week. The market remains divided on Bitcoin’s next move. While the tightening of global liquidity could cause a short-term correction, the long-term outlook for Bitcoin remains optimistic, especially with institutional support.
In this uncertain environment, experts advise that investors consider dollar-cost averaging (DCA) to navigate the potential volatility, as Bitcoin’s long-term resilience, driven by factors like the 2024 halving and growing adoption, could help it recover from any correction.
While Bitcoin faces a potential 25% correction due to the tightening of global liquidity and its lagging correlation with M2 money supply, the market remains optimistic. Institutional interest in Bitcoin ETFs and corporate buying could provide support against these macroeconomic pressures. Bitcoin’s historical resilience suggests that long-term investors may still benefit from holding, especially if they employ strategies like dollar-cost averaging to weather short-term volatility.
Julie is a renowned crypto journalist with a passion for uncovering the latest trends in blockchain and cryptocurrency. With over a decade of experience, she has become a trusted voice in the industry, providing insightful analysis and in-depth reporting on groundbreaking developments. Julie's work has been featured in leading publications, solidifying her reputation as a leading expert in the field.
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