Bitcoin’s recent struggles to breach the $100,000 mark have left many investors and analysts pondering the root cause. Despite experiencing significant gains throughout 2024, Bitcoin has found itself facing headwinds, particularly in the wake of a sharp decline in global money supply. The connection between liquidity, money supply trends, and Bitcoin’s price performance is crucial to understanding why Bitcoin, which many view as a hedge against inflation, is having difficulty reaching new milestones.
Bitcoin started the month of November at around $69,500, experiencing an impressive rally that saw it climb by over 45.82% in just a few weeks. This surge culminated in a new all-time high (ATH) of $98,884 on November 22. However, the bullish momentum quickly slowed down, and between November 24 and 26, the market faced a significant correction, with Bitcoin prices dropping by over 7%. As of now, Bitcoin is struggling to regain the ground lost during this pullback, hovering just above $90,000.
While these fluctuations are not uncommon in the crypto market, the timing of this correction, coupled with broader economic trends, has raised concerns about Bitcoin’s ability to sustain its upward trajectory.
One of the key factors influencing Bitcoin’s price behavior is the state of the global money supply. Over the past decade, the global money supply has surged by an astonishing $50 trillion, benefiting Bitcoin significantly. As a deflationary asset, Bitcoin is often seen as a hedge against inflation, thriving in periods of increasing money supply.
However, the recent decline in the M2 Money Supply has led to growing concerns about Bitcoin’s long-term price trajectory. M2, which includes cash, checking deposits, and easily convertible near-money, is a crucial measure of liquidity within an economy. Historically, Bitcoin bull markets have closely coincided with periods of rising M2 growth. For instance, in early 2024, the M2 Growth Year-on-Year (YoY) index was at 3.19%, reflecting relatively strong economic liquidity. However, this growth slowed dramatically as the year progressed.
Between August and September 2024, M2 growth spiked from 4.17% to 7.09%, fueling Bitcoin’s rally toward its ATH. However, after that, the M2 index sharply plummeted, and by mid-November, it stood at just 1.83%. This sharp contraction in the money supply suggests a tightening of liquidity, which could explain why Bitcoin is struggling to break the $100K barrier.
Lower liquidity typically means less buying power in the market, which can lead to increased price volatility. Bitcoin, as a highly volatile asset, is especially sensitive to such shifts. When liquidity is low, there is less capital to sustain upward price momentum, making it more difficult for Bitcoin to break through psychological price barriers like $100K.
Additionally, the M2 index’s decline could signal that central banks, including the U.S. Federal Reserve, are tightening monetary policy, which can also lead to less capital flowing into riskier assets like cryptocurrencies.
Bitcoin’s price movement is heavily influenced by global liquidity, and with the M2 growth slowing, Bitcoin’s future price action could be constrained. The recent correction, along with the declining money supply, suggests that Bitcoin could face more challenges in the short term.
While Bitcoin’s fundamental appeal as a hedge against inflation and a store of value remains intact, its price performance is likely to remain closely tied to macroeconomic trends and liquidity levels. Investors will need to keep a close eye on the global money supply, as fluctuations in liquidity could continue to impact Bitcoin’s price volatility.
The road to $100,000 for Bitcoin may not be smooth, especially in the face of declining global money supply. As liquidity continues to tighten, Bitcoin’s path to new highs may be more difficult to navigate. However, Bitcoin’s historical ability to rebound from corrections and its status as a digital store of value provide reasons for optimism.
Traders and investors should remain vigilant about macroeconomic trends, especially the state of M2 growth, and its potential impact on Bitcoin’s price. If liquidity begins to rise again, especially with global economic recovery or policy changes, Bitcoin could experience renewed momentum. Until then, Bitcoin may need to consolidate its position around current levels and await more favorable economic conditions to push past $100K.
Bitcoin’s struggle to surpass the $100K mark is intrinsically linked to the broader economic environment, particularly the decline in global money supply. The correlation between M2 growth and Bitcoin’s price trajectory highlights how liquidity can significantly influence market behavior. While Bitcoin’s fundamentals remain strong, its future price performance is likely to depend on the ebb and flow of global liquidity, making it essential for investors to keep a close watch on money supply trends in the coming months.
Mike T, an accomplished crypto journalist, has been captivating audiences with her in-depth analysis and insightful reporting on the ever-evolving blockchain and cryptocurrency landscape. With a keen eye for market trends and a talent for breaking down complex concepts, Mike's work has become essential reading for both crypto enthusiasts and newcomers alike. Appreciate the work? Send a tip to: 0x4C6D67705aF449f0C0102D4C7C693ad4A64926e9
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