Study Uncovers Bitcoin’s Link to Global Money Supply Trends

On September 25, the founder of Lyn Alden Investment Strategy announced the release of a newly commissioned research paper. This paper focuses on analyzing global money creation and comparing it to various asset classes. It explores how different assets, including Bitcoin, react to changes in the global money supply.

One of the standout findings from the research is that Bitcoin aligns with the movement of the global money supply (also known as M2) 83% of the time. This correlation between Bitcoin and global money creation is stronger than the correlation found with other types of assets.

The research pointed out that Bitcoin’s price is closely tied to global liquidity. This suggests that Bitcoin could serve as a “liquidity barometer,” meaning that it reflects changes in the availability of money across the economy.

The study explains that as global liquidity expands—often measured through the M2 money supply—Bitcoin’s price typically rises alongside it. On the other hand, when liquidity tightens or contracts, Bitcoin’s price tends to follow the same downward trend. This shows that Bitcoin’s value is sensitive to the amount of available money in the global economy.

The research looked at data from May 2013 to July 2024, revealing a correlation coefficient of 0.94 between Bitcoin and global liquidity. This high correlation suggests a strong relationship between the two.

To clarify, M2 money supply is a measure of the total amount of money in circulation. It includes cash, checking deposits, and other easily accessible assets like savings accounts and short-term deposits. M2 also plays a significant role in tracking the amount of money flowing through the economy, which influences inflation, interest rates, and overall economic activity.

Lyn Alden also commented on how other assets, such as stocks and gold, interact with global liquidity. Stocks are influenced by company earnings, which can create variability in their correlation with liquidity. Gold, on the other hand, has a “defensive” nature that can affect its connection to liquidity. In contrast, Bitcoin’s correlation with liquidity remains more straightforward, though its high volatility can sometimes distort short-term patterns.

The paper concluded that Bitcoin’s strong connection to global liquidity makes it a valuable indicator for investors and traders. It can help them understand broader macroeconomic trends and shifts in global money supply. According to Alden, “Bitcoin can be seen as a mirror that reflects the rate of global money creation and the relative strength of the dollar.”

Earlier this year, Lyn Alden made a bold prediction that Bitcoin prices could surge to $200,000 within the next two years, reinforcing her belief in Bitcoin’s future potential.

In recent news, market analyst ‘Game of Trades’ shared an update with his 247,000 followers on the social media platform X. He noted that the M2 money supply has begun expanding again after hitting its deepest contraction level since 1960.

The St. Louis Federal Reserve reported that the M2 money supply started shrinking in March 2022 but reversed course and began increasing in March 2024. As of now, the M2 money supply in the United States has reached $21.17 trillion, marking a 2% rise over the past six months.

This increase in M2 is seen by many analysts as a positive sign for Bitcoin. A rising money supply generally creates more liquidity, which can drive asset prices higher. Several experts are predicting that this trend could spark a bullish run for the cryptocurrency market, with the fourth quarter looking particularly promising for Bitcoin.