Bitcoin's Decoupling from M2: A Reset or Reversal?

The relationship between Bitcoin and the M2 money supply has long been a focal point for macro-driven investors. From 2015 to 2025, cointegration analysis revealed a long-term elasticity of 2.65, meaning a 1% increase in M2 correlated with a 2.65% rise in Bitcoin's price. However, recent developments suggest a significant shift: Bitcoin has decoupled from global M2 liquidity since July 2025, driven by U.S. government borrowing and a systemic deleveraging event in October 2025 that erased $20 billion in positions according to market analysis. This raises a critical question: Is this decoupling a structural reversal or a cyclical reset? And how might liquidity-driven positioning strategies prepare for a potential 2026 rally?

The Historical M2-Bitcoin Dynamic

Bitcoin's price has historically exhibited a strong, albeit volatile, correlation with M2 money supply. During the bull market phase preceding October 2025, the correlation hit 0.89, while the post-peak bear market saw it invert to -0.49. This duality underscores Bitcoin's role as both a liquidity amplifier and a contrarian indicator. A cointegration study from 2015–2025 reaffirms that Bitcoin remains highly elastic to M2 changes, particularly during monetary expansion. However, the U.S. dollar (DXY) acts as a throttle: Bitcoin's correlation with M2 strengthens when the dollar weakens and weakens when the dollar strengthens as market data shows. As of late 2025, the rolling correlation between Bitcoin and the 84-day-lagged M2 stands at -0.12, reflecting dollar strength and reduced liquidity according to recent analysis.

Decoupling: Structural or Cyclical?

The current decoupling is attributed to two key factors. First, U.S. government borrowing has reduced net dollar liquidity, pushing Bitcoin below $126,000. Second, a deleveraging event in October 2025 exacerbated market fragility, with liquidity-driven selling dominating. Analysts, however, argue this is a temporary phase. On-chain signals such as the Puell Multiple entering the "buy" zone and aggressive whale accumulation suggest the market is nearing a cyclical bottom. Additionally, institutional pragmatism-evidenced by record inflows into U.S.-listed spot Bitcoin ETFs-indicates a potential accumulation phase according to market analysis. While diverging monetary policies between the Federal Reserve and Bank of Japan create headwinds, the market remains optimistic for 2026, with price projections between $90,000 and $160,000 as reported by analysts.

Positioning for a 2026 Rally

Liquidity injections in Q4 2025, including $6.8 billion in Treasury purchases and rate cuts, are laying the groundwork for a potential 2026 bull run according to market reports. Historical parallels, such as the 2020–2021 surge from $5,000 to $68,000, highlight the power of synchronized global liquidity as market data shows. Technical indicators also support this view: Bitcoin's four consecutive green daily candles and Fibonacci extensions project a high-probability range of $145,000 to $175,000. The RSI at 64 (December 2025) remains below overbought levels, suggesting further upside according to technical analysis.

Yet risks persist. ETF inflows have slowed to $180–250 million daily, down from earlier momentum. Dolphin wallets (100–1,000 BTC) have reduced exposure, signaling a shift from accumulation to distribution. Moreover, Bitcoin's break below the 365-day moving average-a critical long-term trend indicator-increases bearish probabilities according to technical indicators.

Conclusion

Bitcoin's decoupling from M2 appears to be a cyclical reset rather than a structural reversal. While macroeconomic pressures and market fragility linger, liquidity injections, on-chain strength, and institutional demand point to a potential 2026 rally. Investors should balance optimism with caution, leveraging technical signals and liquidity-driven positioning to navigate the evolving landscape.