The Correlation Between M2 Money Supply and Crypto Bull Runs
Raoul Pal, co-founder and CEO of Real Vision, believes that the rising total money supply (M2) could lead to another bull rally in the crypto market and potentially outperform traditional markets. In a recent post on X (formerly Twitter), Pal highlighted the correlation between the increasing fiat market supply and the start of crypto bull runs.
Pal shared a graph comparing Bitcoin’s yearly performance with the global M2 money supply, showing how Bitcoin and the cryptocurrency market tend to outperform traditional financial markets when there is a rise in global M2 supply. The chart indicates that Bitcoin’s price is on the verge of decoupling from the traditional market as M2 supply continues to rise.
Pal expressed his enthusiasm for global M2, stating that it is when BTC outperforms other assets and crypto becomes a “Super Massive Black Hole.”
The Role of M2 in Bitcoin Bull Runs
M2 refers to the amount of money estimated to be in circulation by the United States Federal Reserve. It includes all cash held by individuals and money placed in savings accounts, checking accounts, and short-term savings instruments.
While Bitcoin’s block reward halving every four years is often associated with bull runs, macroeconomic factors such as M2 growth also play a crucial role. Over the past decade, Bitcoin has experienced significant price gains during periods of fast M2 growth, which are characterized by reduced interest rates, quantitative easing, and fiscal stimulus.
In contrast, when central banks tighten monetary policy, the cryptocurrency market tends to struggle. The 2021 bull market aligned with an aggregate M2 growth of 6% or higher at major central banks including the Fed, European Central Bank, Bank of Japan, and People’s Bank of China.
Hot Take: The Impact of M2 on Crypto Performance
The correlation between the rising M2 money supply and crypto bull runs suggests that increased liquidity in the traditional markets can drive investors towards cryptocurrencies. As M2 continues to grow, Bitcoin and other cryptocurrencies may see a surge in demand and outperform traditional assets.
Source: CoinTelegraph
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