Bitcoin’s recent 15% correction in the third week of December marked its largest weekly drop since August 2024. Experts are attributing this sharp decline to global macroeconomic factors, particularly the tightening of global liquidity. The fall in the global money supply, a key economic indicator, suggests that Bitcoin may face additional pressure, potentially dropping by as much as $20,000 in the coming weeks if current trends continue.

Declining Global Liquidity Signals Potential for Further Bitcoin Losses

The relationship between Bitcoin and global liquidity, specifically the Global Money Supply (Global M2), has been a key factor in price predictions. According to The Kobeissi Letter, Bitcoin’s price historically shows a 10-week lagged correlation with Global M2. Over the past two months, the global money supply has dropped by $4.1 trillion, signaling a contraction in liquidity that could affect Bitcoin prices. The global M2, which includes cash, demand deposits, and other liquid assets, is currently at $104.4 trillion—its lowest level since August 2024.

This contraction follows a period when the global money supply reached a record high of $108.5 trillion in October 2024, coinciding with Bitcoin’s all-time high of $108,000. As the money supply decreases, Bitcoin’s price is expected to fall in a similar manner, with some experts predicting a potential drop of $20,000 over the next few weeks if this trend continues.

Forecasting Further Bitcoin Declines

Joe Consorti, Head of Growth at Theya, a Bitcoin custody firm, had warned a month ago about the possibility of a 20%–25% Bitcoin correction based on similar indicators. With the recent correction materializing, his predictions appear to be on track.

André Dragosch, Head of Research at Bitwise, shares a similar outlook. He expects Bitcoin to remain under pressure due to ongoing liquidity tightening in the United States and globally. However, Dragosch points out an internal factor that could help mitigate the negative effects of tightening liquidity: the growing illiquid supply of Bitcoin.

Illiquid Supply May Offer Long-Term Support for Bitcoin

Bitcoin’s increasing illiquid supply could play a crucial role in supporting its price amid global liquidity constraints. As more Bitcoin is held in long-term storage or by investors unwilling to sell, the available supply in the market decreases, potentially increasing scarcity. This shift toward a more illiquid supply could counterbalance the effects of declining global liquidity and offer some price support for the cryptocurrency.

Dragosch suggests that the growing supply deficit could eventually outpace the bearish macroeconomic factors affecting Bitcoin. While short-term volatility is expected, particularly in early 2025, these bullish on-chain factors could create attractive buying opportunities for investors who are willing to weather the storm.

Bitcoin’s Market Outlook

At the time of writing, Bitcoin is trading around $94,000, down nearly 6% over the weekend. The ongoing decline in global money supply and tightening liquidity in the U.S. suggest that Bitcoin may continue to face downward pressure in the short term. However, the increasing illiquid supply of Bitcoin provides some long-term optimism for the cryptocurrency, as its scarcity could bolster its value once macroeconomic conditions stabilize.

With 2025 approaching, Bitcoin’s ability to navigate these challenges will be closely watched. If internal factors like reduced supply continue to drive demand, Bitcoin could eventually regain its upward momentum. In the meantime, traders and investors will likely remain cautious as they monitor global liquidity and market trends for further signals of Bitcoin’s direction.