M2 Sucks as a Bitcoin Predictor, Here’s Why.

It was only a month ago when I asked the question,

Can you handle $70,000 Bitcoin (again)?

Now, I wasn’t hoping the Bitcoin price would head in that direction. And I certainly don’t want to see Bitcoin at $70,000 again.

But when you’ve been in this market long enough, you must come to accept that large swings in Bitcoin’s price are a normal, healthy part of this asset.

It has been a while since we’ve seen Bitcoin’s price rip double-digits in any direction. Of course, it just had to be lower, didn’t it?

Unless you’ve been living under a rock (or in the corridors of Berkshire Hathaway) you’d know Bitcoin’s price went sub-$90,000 overnight. In fact, it touched as low as $86,000 in some places.

The altcoin market followed suit and for stocks on the U.S. markets, Strategy, MARA, RIOT, Cipher Mining, IREN, were all down double digits as well.

It was a horrific day for Bitcoin investors.

Why did this happen? Why is Bitcoin down in price year to date? Why haven’t we ‘mooned’ yet? Isn’t Trump supposed to pump the market?

Oh, it’s the M2 Supply we Should Watch

Every ‘X.com economist’ is claiming that you can easily predict Bitcoin’s price moves by simply tracking the M2 money supply and overlaying Bitcoin’s price.

Online you’re going to see this chart (and variations of) a lot.

And at first glance, yeah, that looks like a pretty good assessment of how to track Bitcoin’s price.

But you know how sometimes you look at a cloud and think you see the shape of a dinosaur, or a flower, or whatever your mind wants you to see?

Same thing here.

There’s been a lot of empirical research in previous years that suggests there’s an incredibly low correlation between M2 and Bitcoin’s price.

For a start, M2 is the total supply of money including cash, deposits and short-term money accounts. It’s all the money in the economy.

Bitcoin’s price is primarily a factor of supply and demand. There are of course other significant factors around sentiment, and regulatory considerations, as well as the health and stability of the traditional financial system.

These two concepts at their core level are completely different economic factors, operating in two very different economic systems.

Add to that, there are repeated times over the years when M2 and Bitcoin completely diverge. There was early in 2014, the end of 2016, end of 2017, pretty much all of 2019 and the start of 2020, the first half of 2022 and a large chunk of 2024 – just some examples where either Bitcoin’s price has been shooting higher and M2 was flat or decreasing, or when M2 was on the move and Bitcoin was flat or decreasing.

Therefore, when you see the M2 chart with a Bitcoin overlay, we should report a chart crime to the chart police.

What’s really happening is the natural swings of investor sentiment and demand and appetite for risk-on or risk-off investing.

If you really want to know why investors are selling up, take a look at the stock market, take a look at the fear & greed index.

I didn’t need the M2 chart to know that writing a piece on $70,000 Bitcoin a month ago was needed. I didn’t need it to write to you about the long term benefits of setting up a DCA (dollar cost average) strategy for Bitcoin to smooth out the volatility.

Enough time in this market, with enough experience, and you’ll know this is just ‘Bitcoining’ – Bitcoin doing its wild thing, and we’re all along for the ride.

I saw a great summation of it all, when founder, and former CEO of Binance, Changpeng Zhao (CZ) posted this on X.com

When you see red numbers across the board with Bitcoin and altcoins, and you see what we’ve been writing about this week (and last month) about volatility and smart long-term strategies, just enjoy this moment for what it is…

A buying opportunity.

Trust in crypto,
Adam Atlantic