Bitcoin And M2 Money Supply: Analysts Clash Over Correlation Claims

HomeNews* Analysts claim Bitcoin’s price tracks global M2 money supply, but evidence for a strong link is inconsistent.

• Charts showing M2 and bitcoin alignment change significantly depending on the timeframe selected.
• M2 represents money in cash, checking, savings, and some other accounts, but is not the best indicator of fiat liquidity.
• Experts warn that pattern matching and selective data use can lead to misleading conclusions about Bitcoin Price drivers.
• Statistical analysis shows no robust causal link between M2 movements and bitcoin price action. A group of technical analysts has recently argued that the price of bitcoin (BTC) closely follows the global M2 money supply. They reached this conclusion after overlaying bitcoin’s price charts with M2 data, a metric that includes cash, checking and savings accounts, traveler’s checks, small deposits, and money market funds in major economies.

• Advertisement - The comparison gained traction on the social media platform X, with analysts publishing screenshots showing both lines seemingly moving together. According to these proponents, a 100-day offset in M2 provides a “strong signal” for anticipating BTC price changes.

However, a review by Protos found that these correlations appear less convincing when changing the time frame of the charts. Between 2021 and the present, M2 and BTC seem to rise and fall in step. But when the view zooms out to include data from 2019, M2 surges well before BTC and even hits new highs while bitcoin falls, including during the FTX bankruptcy in late 2022.

Technical analysts track asset prices and trading volumes to find possible predictive patterns. The article notes that this method can lead to “curve-fitting,” where unrelated data is matched to fit preconceived narratives. Analysts may also be prone to “data dredging”—selecting favorable data from a range of inputs without measuring true causality.

The article explains that M2 often autocorrelates with the price of all goods, since it measures the total amount of money. Other experts, like Joe Carlasare, argue that M2 is a weaker indicator of fiat liquidity—the actual amount of money available to invest in assets like bitcoin—than other measures. Liquidity is considered a better predictor for bitcoin purchases than the broader M2 supply.

Statistical significance is important in determining real links between variables. The article points out that when tested, M2’s relationship with bitcoin shows high p-values, suggesting any apparent link is likely coincidental. Measures of true market liquidity display better, but still not definitive, statistical ties.

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