Bitcoin Driven By The Money Supply

The alignment of the planets continues. While the United States wants to accumulate “as many bitcoins as possible”, the global money supply is climbing again.

Bitcoin vs M2

The correlation between Bitcoin and the global money supply (M2) has been a hot topic lately.

As a reminder, central banks can slow down the rate of money creation by raising interest rates and vice versa. In the long term, the M2 money supply of advanced countries grows by 7% per year.

In other words, if economic output remains stable, money loses 7% of its value each year. This results in a loss of 50% after ten years…

Increasing the production of goods and services helps absorb the money creation. But without growth, wages cannot keep up with inflation, and savings lose purchasing power.

This is the situation we find ourselves in due to the growing difficulties in extracting the essential energy for growth. Not to mention the government waste that doesn’t help. And given that inflation encourages trading savings for a desirable asset, M2 is a good leading indicator for the price of bitcoin.

This correlation is not perfect, but historically, an increase in the global money supply often leads to an influx of capital into desirable assets such as bitcoin, stocks, and commodities.

The most desirable asset today is Bitcoin. For many reasons, perfectly articulated by Michael Saylor at the Digital Asset Summit in New York this week.

In short, the numbers show that Bitcoin tends to follow the evolution of the money supply with a lag of about 70 days. The M2 guy expects bitcoin to resume its forward march on March 25. Time will tell.

[The yellow curve represents the global M2 money supply. It is shifted 70 days to the right to suggest the direction bitcoin is about to take.]

It Smells Like Fresh Ink

It is true that the Fed is slowly lowering its rates out of fear of a resurgence of inflation due to customs tariffs. That said, the M2 money supply of the dollar is already up 4% compared to last year.

This is the fastest rate of monetary expansion in 30 months. We are in the eleventh consecutive month of M2 increase (21.6 trillion dollars). We are a hair’s breadth away from the historical record set in April 2022.

The global money supply has increased by 2 trillion dollars over the last two months. This is the equivalent of 102.6 trillion dollars in total:

Additionally, China, the world’s largest economy by purchasing power parity, is about to accelerate monetary printing!

Prime Minister Li Qiang announced this month a real GDP growth target of 5% for 2025. The inflation target is 2%, resulting in a nominal GDP growth target of 7%.

According to Fortune Magazine, these targets will require a 10% increase in the money supply, compared to 7% currently. Not to mention that inflation is down 0.7% year-on-year, which is well below the desired 2%.

This is why Beijing has recently raised its public deficit target from 3% to 4% of GDP for 2025. Some Chinese economists are even betting on 10%!

This marks a break from the long-established convention, since 1999, that Beijing would strive to keep the deficit below 3%, as is generally required by the Maastricht Treaty of the European Union.

Imminent Bull Run

The growth of the global money supply bodes well for bitcoin, as does the U.S. strategic reserve…

Traders sold the news, but patience is key. Let’s not forget that the U.S. president’s decree charges the Treasury and Commerce departments with developing budget-neutral strategies to accumulate more BTC.

The key phrase in the decree is “budget-neutral”, meaning that the operation will cost taxpayers nothing, and it also does not require Congressional approval… The U.S. government could, for instance, sell gold to buy bitcoins.

That said, a bill (Bitcoin Act) is already in the hands of senators, which could facilitate things. Cynthia Lummis did, however, reveal this week that she does not currently have a majority.

Other senators, however, are confident. Such is the case with Tom Emmer, who believes that the bill allowing the purchase of 1 million BTC will be passed:

Many nations are very interested in bitcoin as an international reserve currency. Notably, the United Arab Emirates and Russia, two BRICS member countries, are on board.

The United States will certainly trigger a snowball effect, and many analysts see bitcoin reaching $400,000 in the coming months. Michael Saylor predicts it will surpass Google, Apple, and even gold within 48 months.

Don’t miss our article: The United States Will Erase Debt Thanks to Bitcoin.