Bitcoin Emerges as Key ‘Liquidity Barometer’, Matches Global Money Supply Trends: Study

On September 25, the founder of Lynn Alden Investment Strategies announced that a recent research paper measured global financial innovation relative to other asset classes.

According to Alden's paper, Bitcoin moves in the global money supply (M2) 83% of the time and more than any other asset.

Bitcoin has shown a strong correlation with global liquidity, making it a potential “liquidity barometer,” the study noted.

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Bitcoin liquidity barometer

As global liquidity expands, as measured by metrics such as M2 money supply, the value of Bitcoin typically increases. Conversely, liquidity tends to decrease as it contracts.

For the study period from May 2013 to July 2024, the study found a correlation of 0.94 with international liquidity, indicating a highly sensitive relationship.

I commissioned a research report written by @samcallah to measure Bitcoin's relationship to global money creation metrics relative to other asset classes.

Result: bitcoin moves in the direction of global M2 83% of the time; More than other properties. pic.twitter.com/8710g6NKqr

— Lyn Alden (@LynAldenContact) September 24, 2024

M2 money is a measure of the money supply that includes cash, checking deposits, and near cash. M1 includes money, including physical currency, savings accounts, and short-term deposits. It also serves as an indicator of money in the economy, influencing inflation, interest rates and overall economic activity.

When comparing other assets, Alden commented that stocks have earnings that can affect correlations, while gold has a “defensiveness,” which can affect correlations.

“Bitcoin is basically considered as risky as gold, so it has the highest correlation.

The researchers argue that bitcoin's strong correlation with global liquidity can distort the short-term relationship as it is affected by high volatility.

The paper concludes that this connection to global liquidity makes bitcoin “a useful macroeconomic barometer for investors and traders.”

“One can think of Bitcoin as a mirror reflecting the world's rate of money creation and the relative strength of the dollar.”

Earlier this year, Lynn Alden predicted that BTC prices would reach $200,000 within two years.

M2 is increasing.

Earlier this week, market analyst ‘Game Trade' told his 247,000 X followers that the M2 money supply is entering expansion after reaching its deepest level of contraction since 1960.

Warning: M2 money supply has just entered expansion.

After reaching its deepest level of contraction since 1960 pic.twitter.com/DX8eXo1ytC

— Game of Trade (@GameofTrades_) September 23, 2024

According to the St. Louis Federal Reserve, the M2 money supply began contracting in March 2022 and began increasing again in March 2024. It is now $21.17 trillion in the United States, up 2 percent over the past six months.

With many analysts predicting that the crypto market's bull run will begin in the fourth quarter, the implications for bitcoin prices are immense.