Bitcoin: Is the sell-off already over?
The recent turmoil in the cryptocurrency market has once again put the close relationship between Bitcoin and the global M2 money supply in the spotlight. While the M2 money supply corrected sharply at the beginning of the year, Bitcoin only experienced a significant drop in the last few days. However, M2 has now almost reached its original level again. Historically, this momentum could soon boost Bitcoin.
M2 is a measure of the money supply in economies and includes cash, demand deposits and short-term time deposits. An increase in the M2 money supply often indicates an expansionary monetary policy, which traditionally goes hand in hand with rising asset prices - including cryptocurrencies such as Bitcoin. Conversely, a decrease in the M2 money supply can indicate a more restrictive monetary policy that puts pressure on asset prices. Bitcoin is particularly sensitive to such liquidity changes, which makes M2 an important indicator.
A chart shared by ZeroHedge on X shows a significant recovery in M2 money supply after the decline earlier in the year. This development could be a positive signal for Bitcoin, as analytics show an 83% correlation between global M2 movements and Bitcoin price movements over 12-month periods. If this correlation holds, the recent sell-off in Bitcoin may have already bottomed out.
You can run but you can't hide: bitcoin finally caught down to global liquidity. The good news - that was the bottom, and now up we go https://t.co/f4usUdSQGf pic.twitter.com/lTtZn1aqeX
— zerohedge (@zerohedge) February 25, 2025
The time lag between M2 changes and Bitcoin price movements is not a new phenomenon. Studies by Bitcoin analyst Joe Consorti and Quant Journey suggest that Bitcoin often reacts to changes in the global money supply with a lag of about 70 days.
The global money supply M2 is a decisive factor for the Bitcoin price, and the current data is encouraging. The Bitcoin price may already have survived the worst. Invested investors are staying on board.
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Note on conflicts of interest The board of directors and majority owner of the publisher Börsenmedien AG, Mr. Bernd Förtsch, has directly and indirectly taken positions in the following financial instruments mentioned in the publication or derivatives related to them, which can benefit from any price development resulting from the publication: Bitcoin.
Gerd Weger has been successfully active on the markets since the 1980s and is known to many stock market traders as a columnist for €uro am Sonntag or as the operator of his legendary "Millionaire Depot". In 2017, he shifted his focus from stocks to cryptocurrencies and has now published a standard work: The focus is on the valuation factors of Bitcoin and Co. The completely different approaches to fundamental analysis compared to stocks are systematically presented in the book. The considerations for tax optimization are also important. For enlightened investors and traders, all of this is essential for sustainable investment success with cryptocurrencies.
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