Bitcoin's Historic Undervaluation Amid Record Money Supply Expansion: A Contrarian Bull Case for 2026

The global financial system is in the throes of a liquidity supercycle. As of Q3 2025, the global M2 money supply has surged to $142 trillion, with major central banks-led by the U.S. Federal Reserve, ECB, and PBOC-driving a 7.01% year-over-year expansion in liquidity. The U.S. alone saw its M2 money supply hit $22.3 trillion in October 2025, growing at the fastest pace since July 2022. Yet, despite this unprecedented monetary expansion, Bitcoin remains deeply undervalued relative to global liquidity metrics. Bitwise's analysis estimates a 66% discount between Bitcoin's current price and its model-implied fair value of $270,000. This valuation gap, coupled with structural tailwinds in institutional adoption and tokenization, presents a compelling contrarian bull case for 2026.

The M2-Driven Valuation Gap

Bitcoin's undervaluation becomes stark when viewed through the lens of global M2 growth. The cointegration model used by Bitwise compares Bitcoin's price to liquidity metrics, revealing a widening mispricing as central banks continue to expand money supplies. For context, gold-a traditional store of value-is overvalued by 75% relative to global M2, having absorbed much of 2025's liquidity expansion. This divergence highlights a critical asymmetry: while gold has historically priced in monetary inflation, Bitcoin lags far behind, even as its role as a digital store of value gains institutional traction.

The data suggests Bitcoin often moves ahead of liquidity peaks, acting as a forward-looking indicator. Yet today, it trades at a discount to its fair value, implying a potential 194% upside if the valuation gap closes. This mispricing is not a bug but a feature of a market still in its early stages of adoption. As Fidelity's Jurrien Timmer notes, Bitcoin lags gold in both momentum and Sharpe ratio metrics, signaling a potential mean-reversion setup.

Institutional Adoption and Tokenization: Structural Tailwinds

The case for Bitcoin's re-rating is further strengthened by institutional accumulation and tokenization trends. In 2025, 68% of institutional investors either invested in or planned to invest in Bitcoin exchange-traded products (ETPs), with 86% allocating to digital assets or planning to do so. The approval of spot Bitcoin ETFs in the U.S. and other jurisdictions has normalized Bitcoin as an asset class, with crypto ETF assets under management reaching $191 billion. This marks a shift from speculative trading to strategic portfolio allocation, driven by Bitcoin's low correlation to traditional assets and its role as a hedge against inflation.

Simultaneously, tokenization is reshaping financial infrastructure. Regulatory clarity from the GENIUS Act and global initiatives has spurred a $275 billion total value locked in stablecoins and tokenized real-world assets. Public blockchains are now integral to institutional finance, enabling cross-border payments, tokenized securities, and decentralized finance (DeFi) platforms. Bitcoin's dominance in the crypto market-accounting for 65% of the $1.65 trillion market cap as of November 2025-positions it as the foundational asset in this new ecosystem.

Macroeconomic Dislocation and the Path to Repricing

The macroeconomic backdrop reinforces the case for Bitcoin's re-rating. While core PCE inflation in the U.S. remains above 2.5%, central banks are aggressively easing. The Federal Reserve cut rates by 75 basis points in 2025, with the ECB reducing rates to 2.15% according to financial reports. These cuts reflect a broader shift toward accommodative policies as central banks balance disinflationary risks against weak labor markets. However, Bitcoin's historical relationship with liquidity suggests it will eventually catch up to the pace of monetary expansion.

The asymmetry here is critical: if Bitcoin realigns with global liquidity fundamentals, the upside is asymmetric. A 194% re-rating would push Bitcoin to $270,000, aligning it with the pace of M2 growth. Conversely, a reversal in monetary policy would likely impact all asset classes, not just Bitcoin. Yet, given the structural tailwinds of institutional adoption and tokenization, the risks are skewed toward a mean reversion rather than a collapse.

Conclusion: A Contrarian Bull Case for 2026

Bitcoin's 66% undervaluation relative to global M2, combined with institutional adoption and tokenization trends, creates a compelling case for a 2026 re-rating. The market is pricing in a world where Bitcoin remains a niche asset, but the data tells a different story: Bitcoin is becoming a cornerstone of a tokenized financial system. As central banks continue to expand liquidity and institutional investors reallocate portfolios, the valuation gap is unlikely to persist. For investors willing to bet on the long-term structural shift toward digital assets, Bitcoin offers an asymmetric opportunity with a clear path to mean reversion.