Cryptocurrency and the M2 Money Supply

This research investigates the relationship between Bitcoin and the M2 money supply, analyzing how changes in global liquidity—from post-crisis quantitative easing to pandemic-era stimulus and recent tightening—correlate with Bitcoin’s boom-and-bust cycles. Contrary to the "digital gold" narrative, the data suggests Bitcoin is more influenced by liquidity cycles than by inflation itself. While Bitcoin shows potential as a long-term store of value in fragile economies, it currently behaves more like a liquidity-sensitive, high-beta asset than a consistent hedge against inflation. As central banks expand or contract the money supply, Bitcoin's price tends to mirror those macro shifts.

Bitcoin’s price trends closely follow M2 growth, particularly during periods of aggressive monetary expansion (e.g., 2020–2021).

Bitcoin is not a reliable short-term inflation hedge, but may serve as a long-term store of value in inflation-prone countries.

Tightening cycles (e.g., 2022–2023) coincide with significant declines in Bitcoin prices, reinforcing its dependence on macro liquidity.

Empirical data show that Bitcoin behaves more like a risk asset—comparable to tech stocks—than like gold or other traditional hedges.

Institutional interest and adoption continue to rise during periods of anticipated easing, adding another layer to price momentum.

Real-world use cases (e.g., in Argentina and Turkey) demonstrate Bitcoin’s potential as a fiat alternative under economic distress.

Stablecoins play a growing role in bridging fiat systems and crypto ecosystems, reinforcing digital asset liquidity and access.

Regulatory developments are increasingly focused on balancing innovation with monetary policy control, particularly amid global crypto adoption.

What sets this research apart is its macro-holistic framing of Bitcoin as a liquidity-sensitive asset rather than a binary inflation hedge—a narrative still underexplored in public discourse. While many discussions focus on Bitcoin's role in inflationary environments, our data suggests the true driver is global liquidity, not inflation itself. This reframing—Bitcoin as a macro sentiment barometer—positions it closer to assets like Nasdaq tech stocks than to traditional commodities like gold. Furthermore, by mapping Bitcoin's historical performance directly against global M2 trends (not just U.S.), the research introduces a global lens on crypto valuation, which is increasingly relevant in a decentralized, borderless financial landscape. This insight is critical for policymakers, institutional investors, and the crypto-native community alike, signaling a need to rethink Bitcoin’s role in global portfolios and monetary strategy.