Bitcoin's Break From M2 Correlation and the Role of Treasury Liquidity

The relationship between Bitcoin and global M2 money supply has long been a cornerstone of macroeconomic analysis in crypto markets. Historically, Bitcoin's price has aligned with M2 growth, lagging by approximately 12 weeks as liquidity expansions filter into risk assets. However, this dynamic has fractured in 2023–2025, with Bitcoin diverging sharply from M2 trends. This breakdown is not a random anomaly but a direct consequence of U.S. Treasury liquidity measures, particularly the manipulation of the Treasury General Account (TGA), which has created a unique macroeconomic environment.

The TGA and Liquidity Drain: A New Regime

The U.S. Treasury's actions to replenish its General Account (TGA) have become a critical driver of Bitcoin's recent underperformance. By issuing over $500 billion in bonds to rebuild the TGA balance to nearly $1 trillion by late 2025, the government effectively withdrew liquidity from the financial system. This liquidity contraction disproportionately impacted Bitcoin, which fell 30% from its October 2025 peak while the S&P 500 remained flat. In contrast, gold surged to $4,000 per ounce, highlighting Bitcoin's heightened sensitivity to liquidity shifts compared to traditional safe-haven assets.

The TGA's role as a liquidity "throttle" contrasts with M2's slower, multi-month "impulse" effect. While M2 growth continued post-2023, Bitcoin's price stagnated, signaling a regime shift where Treasury-driven liquidity dynamics now dominate. This divergence underscores the importance of monitoring TGA balances and bond issuance as leading indicators for Bitcoin's price trajectory.

Divergence From Equities and Technical Signals

Bitcoin's underperformance against equities in 2025 marks the first year since 2014 that the S&P 500 has surged while Bitcoin declined. This divergence reflects a broader reallocation of capital toward traditional assets like tech stocks, which reached all-time highs, and away from crypto. However, technical indicators suggest Bitcoin may be nearing a turning point. Relative Strength Index (RSI) divergence and on-chain capitulation metrics-reaching levels observed before past rebounds-hint at weakening bearish momentum. Meanwhile, liquidity models highlight a $165,000 fair value gap, suggesting undervaluation amid the current selloff.

The recent rally to $90,000, driven by speculative futures trading, appears fragile without sustained organic demand. Analysts remain divided: some view this as consolidation, while others draw parallels to 2013, 2017, and 2021 cycles, where similar patterns preceded major bull runs.

Macroeconomic Re-Allocation Risks and Institutional Adoption

The U.S. Treasury's liquidity contractions in 2024–2025 exposed systemic vulnerabilities, including widened bid-ask spreads and reduced order book depth in Treasury markets. While the Fed's interventions stabilized liquidity, the broader financial system remains under stress, with emergency facilities like the Standing Repo Facility (SRF) becoming critical tools. This environment has accelerated capital reallocation toward alternatives like gold and liquid alternatives, as highlighted by BlackRock's 2025 investment strategy.

Institutional adoption of Bitcoin, however, continues to gain traction. Morgan Stanley's expanded crypto fund access and JPMorgan's acceptance of Bitcoin as collateral signal growing institutional confidence. These developments could mitigate Bitcoin's liquidity sensitivity over time, provided macroeconomic conditions stabilize.

Conclusion: Navigating the New Normal

Bitcoin's break from M2 correlation and its divergence from equities reflect a new era of liquidity-driven asset dynamics. The U.S. Treasury's role as a liquidity arbiter has created a complex interplay between macroeconomic policy and crypto markets. While Bitcoin's near-term outlook remains uncertain, historical patterns and technical indicators suggest a potential rebound if Treasury liquidity normalizes. Investors must now balance the risks of continued liquidity contractions with the long-term tailwinds of institutional adoption and fair value gaps.