Bitcoin's M2 Relationship Encounters a Liquidity Squeeze Challenge

Source: [1] M2 Global Growth vs Bitcoin: Insights and Trends

[2]

Correlation with This Metric Indicates BTC Has Further Upside Potential

[3] Bitcoin vs Global M2 Supply Growth Chart

[4] Bitcoin’s Price Divergence From M2 Money Supply Not a Bear Signal

[5] U.S. Treasury Action to Blame for Bitcoin’s Break From Global M2

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Global liquidity trends remain a key driver of Bitcoin’s price movement, as demonstrated by the cryptocurrency’s recent climb to $107,446, which highlights its close relationship with the M2 money supply. Analysis from 21 central banks shows that Bitcoin’s major bull runs have historically occurred during periods of rapid monetary expansion, such as the $94.3 trillion surge in global M2 liquidity fueled by central bank policies and quantitative easing M2 Global Growth vs Bitcoin: Insights and Trends [ 1 ]. Experts like Julien Bittel from Global Macro Investor point out that since 2023, Bitcoin and M2 have shown a strong correlation, with Bitcoin typically lagging M2 by about 12 weeks Bitcoin Correlation with This Metric Indicates BTC Has Further Upside Potential [ 2 ]. This pattern implies that Bitcoin may still have room to rise, potentially reaching or exceeding its previous record high of $112,000 as global liquidity peaks.

Yet, Bitcoin has experienced short-term fluctuations, temporarily decoupling from M2 growth in late 2025, which has led to discussions about whether the bull market can be sustained. Crypto analyst Colin observed that such divergences are not unusual and do not necessarily indicate a shift to a bear market, referencing similar occurrences in February 2025 Bitcoin’s Price Divergence From M2 Money Supply Not a Bear Signal [ 4 ]. Raoul Pal from Global Macro Investor attributed the recent slowdown to actions by the U.S. Treasury, specifically the $500 billion replenishment of the Treasury General Account (TGA). This move, which began in July 2025, has drained liquidity from the market, impacting Bitcoin more than stocks or gold, both of which remain at historic highs U.S. Treasury Action to Blame for Bitcoin’s Break From Global M2 [ 5 ]. Pal suggests that with the TGA now adequately funded, Bitcoin’s rally linked to M2 growth could pick up again before the year ends.

The outlook for altcoins is still closely connected to Bitcoin’s performance. While Bitcoin’s dominance in the market has reached its highest level in four and a half years, alternative cryptocurrencies have underperformed, with the CoinDesk 80 Index falling 13% since late August 2025 Bitcoin, Stocks Hit By $400B Liquidity Drain From U.S. Treasury [ 6 ]. This gap highlights Bitcoin’s function as a gauge of liquidity in the crypto sector. Should Bitcoin continue to track M2 growth, altcoins may eventually follow, especially as institutional investors and ETF inflows persist. However, ongoing liquidity withdrawals by the U.S. Treasury and possible interest rate reductions present short-term challenges, and Bitcoin’s inverse relationship with the U.S. Dollar Index (DXY) adds further complexity to its price path U.S. Treasury Action to Blame for Bitcoin’s Break From Global M2 [ 5 ].

Macro strategists caution that the current liquidity backdrop is more precarious than in previous cycles, with low reverse repo balances, stressed bank reserves, and declining foreign interest in Treasuries intensifying the effects of the TGA refill Treasury to Drain $500B From Markets With TGA Refill [ 7 ]. This scenario could put pressure on stablecoin supplies, indirectly influencing

and other highly volatile tokens. On the other hand, stablecoin providers such as and Circle, which now collectively hold $120 billion in U.S. Treasuries, might help cushion some of the liquidity shock, potentially easing stress in the crypto markets Bitcoin Faces Headwinds as Fed Liquidity Tide Recedes [ 8 ].

In spite of these obstacles, the long-term perspective for Bitcoin remains cautiously positive. Historical data indicates that Bitcoin rallies tend to follow liquidity increases by 60 to 70 days, making the end of 2025 a pivotal period Bitcoin vs Global M2 Supply Growth Chart [ 3 ]. Analysts such as Sina warn against overemphasizing the M2-Bitcoin correlation, noting that Bitcoin’s price is shaped by a combination of monetary policy, speculative trading, and broader macroeconomic factors Bitcoin Correlation with This Metric Indicates BTC Has Further Upside Potential [ 2 ]. Even so, the ongoing interaction between global liquidity and Bitcoin’s price highlights its status as a leading indicator for risk assets, with altcoins likely to benefit if the bullish trend continues into 2026.

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