It may seem paradoxical that the movement of cash and the price of bitcoin (BTC-USD) are related, but historical evidence tends to indicate that the circulation of money throughout the U.S. economy acts as a signal for the future direction of the price of Bitcoin (BTC-USD).
The M2 money supply in the United States is a wide measure of cash and time deposits held by the general people. It comprises M1 money, which consists of actual cash and deposits, as well as “less liquid” currency, such as bank savings accounts.
The M2 money supply might have a stronger impact on the Bitcoin and cryptocurrency markets. This statistic seems to be substantially associated with market fluctuations over the previous ten years.
As M2 expansion continues to decelerate, historical patterns indicate that the biggest cryptocurrency faces substantial negative price risk.
In mid-February, the M2 money supply Y/Y growth rate peaked at 27.2%, around two months before Bitcoin (BTC-USD) peaked at $65.5K in mid-April.
As of the 5th of July this year, the M2 growth rate was 11.82 percent. Prior to the pandemic, M2 was expanding at a yearly pace of just 6 to 7 percent.
To demonstrate, Worldwide Macro Investor’s founder and CEO Raoul Pal published on July 22 a graph comparing the global departure from the trend of M2 money supply to crypto market value.
It also seems to reason that investors would exercise more prudence if they have less money to invest, particularly with high-risk assets such as cryptocurrencies. In 2022, the cost of living crisis has worsened this, with most nations witnessing multi-decade inflation peaks and soaring costs for consumer items, gasoline, and energy.
According to Pal, worldwide M2 growth is reversing. “Early days, but crypto is forward-looking in nature and turns earlier than most assets as its such long duration,” he noted.
In the last week or two, crypto markets have flipped, but it is still early days, and bear markets are often protracted. In recent weeks, the market capitalization of cryptocurrencies has increased by 15%, hitting $1.1 trillion.
However, markets are still roughly 70 percent below their November 2017 peaks, and the latest rebound may be flavored with death.
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