Bitcoin's M2 Correlation Faces Liquidity Drain Test

Source: [1] M2 Global Growth vs Bitcoin: Insights and Trends (https://bitcoincounterflow.com/charts/m2-global/)

[2] Bitcoin Correlation with This Metric Shows BTC Has Room for More Upside (https://thecryptobasic.com/2025/06/26/bitcoin-correlation-with-this-metric-shows-btc-has-room-for-more-upside/)

[3] Bitcoin vs Global M2 Supply Growth Chart (https://newhedge.io/bitcoin/bitcoin-vs-global-m2-growth)

[4] Bitcoin’s Price Divergence From M2 Money Supply Not a Bear Signal (https://thefinancialanalyst.net/2025/06/20/bitcoins-price-divergence-from-m2-money-supply-not-a-bear-signal/)

[5] U.S. Treasury Action to Blame for Bitcoin’s Break From Global M2 (https://www.coindesk.com/markets/2025/09/25/u-s-treasury-action-to-blame-for-bitcoin-s-break-from-global-m2-raoul-pal-says)

---

Global liquidity dynamics continue to shape Bitcoin’s price trajectory, with the cryptocurrency’s recent surge to $107,446 underscoring its alignment with the M2 money supply. Data from 21 central banks reveals that Bitcoin’s bull markets historically coincide with periods of aggressive monetary expansion, as seen in the $94.3 trillion global M2 liquidity surge driven by quantitative easing and central bank interventionsM2 Global Growth vs Bitcoin: Insights and Trends^[1]. Analysts like Julien Bittel of Global Macro Investor highlight that Bitcoin and M2 have maintained a tight correlation since 2023, with the former trailing the latter by roughly 12 weeksBitcoin Correlation with This Metric Shows BTC Has Room for More Upside^[2]. This suggests Bitcoin could still rally to match the global liquidity peak, potentially surpassing its $112,000 all-time high.

However, short-term volatility has emerged as Bitcoin temporarily diverged from M2 growth in late 2025, sparking debates about the sustainability of the bull run. Crypto analyst Colin noted such deviations are common and do not signal a bear market, citing similar patterns in February 2025Bitcoin’s Price Divergence From M2 Money Supply Not a Bear Signal^[4]. Raoul Pal of Global Macro Investor attributed the recent stagnation to U.S. Treasury actions, particularly the $500 billion TGA refill to replenish the Treasury General Account. This liquidity drain, initiated in July 2025, has disproportionately impacted Bitcoin compared to equities and gold, which remain at record highsU.S. Treasury Action to Blame for Bitcoin’s Break From Global M2^[5]. Pal argues the TGA is now sufficiently refilled, suggesting Bitcoin’s M2-driven rally could resume by year-end.

The broader implications for altcoins remain tied to Bitcoin’s performance. While Bitcoin’s market dominance has reached a 4.5-year high, altcoins have lagged, with the CoinDesk 80 Index down 13% since late August 2025Bitcoin, Stocks Hit By $400B Liquidity Drain From U.S. Treasury^[6]. This disparity reflects Bitcoin’s role as a liquidity barometer for the crypto market. If Bitcoin continues to align with M2 expansion, altcoins may follow, particularly as institutional adoption and ETF inflows persist. However, the U.S. Treasury’s liquidity withdrawal and potential rate cuts pose near-term risks, with Bitcoin’s negative correlation to the U.S. Dollar Index (DXY) adding complexity to its trajectoryU.S. Treasury Action to Blame for Bitcoin’s Break From Global M2^[5].

Macro analysts warn that the current liquidity environment is more fragile than in previous cycles, with depleted reverse repo balances, strained bank reserves, and reduced foreign demand for Treasuries amplifying the impact of the TGA refillTreasury to Drain $500B From Markets With TGA Refill^[7]. This could pressure stablecoin supply, indirectly affecting Ethereum and other high-beta tokens. Conversely, stablecoin issuers like Tether and Circle, now holding $120 billion in U.S. Treasuries, may absorb some of the liquidity shock, potentially mitigating crypto market stressBitcoin Faces Headwinds as Fed Liquidity Tide Recedes^[8].

Despite these challenges, Bitcoin’s long-term outlook remains cautiously optimistic. Historical patterns suggest a 60–70-day lag between liquidity surges and Bitcoin rallies, positioning the end of 2025 as a critical periodBitcoin vs Global M2 Supply Growth Chart^[3]. Analysts like Sina caution against overfitting the M2-BTC correlation, emphasizing that Bitcoin’s movements are influenced by a mix of monetary policy, speculative positioning, and macroeconomic noiseBitcoin Correlation with This Metric Shows BTC Has Room for More Upside^[2]. Nevertheless, the interplay between global liquidity and Bitcoin’s price action underscores its role as a leading indicator for risk assets, with altcoins poised to benefit if the bull cycle extends into 2026.

---