Bitcoin emerges as key ‘liquidity barometer’ that correlates with global money supply trends: research

On September 25, Lyn Alden Investment Strategy founder announced that her recently commissioned research paper has measured global money creation relative to other asset classes.

Alden’s paper revealed that bitcoin moves in the direction of global money supply (M2) 83% of the time and more than other assets.

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

Bitcoin Liquidity Barometer

As global liquidity expands, as measured through metrics such as M2 money supply, the price of bitcoin typically rises; on the contrary, it tends to decrease when liquidity contracts.

Over a study period from May 2013 to July 2024, the research showed a correlation coefficient of 0.94 with overall liquidity, indicating a highly sensitive relationship.

I commissioned a research report, written by @samcallahto quantify bitcoin’s correlation to measures of global money creation relative to other asset classes.

Result: bitcoin moves in the direction of global M2 83% of the time; more than other assets.https://t.co/ODKNqvzdis 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 readily convertible almost money. It includes M1 money, including physical currency, savings accounts and short-term deposits. It is also used as an indicator of the money available in the economy, which influences inflation, interest rates and general economic activity.

Comparing other assets, Alden commented that stocks have gains that can affect their correlation, and gold has “defensiveness,” which can affect its correlation.

“Bitcoin is basically treated as a risk to gold. So it has the highest correlation.”

The researchers found that bitcoin’s strong correlation with global liquidity is influenced by its high volatility, which can distort its short-term correlations.

The paper concluded that this correlation with global liquidity makes bitcoin “a valuable macroeconomic barometer for investors and traders.”

“Bitcoin can be thought of as a mirror that reflects the rate of global money creation and the relative strength of the dollar.”

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

M2 on the rise

Earlier this week, market analyst “Game of Trades” told his 247,000 X followers that the M2 money supply was expanding after reaching the deepest level of contraction since 1960.

ALERT: the M2 money supply has expanded

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

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

According to the Federal Reserve of St. Louis, the M2 money supply began to contract in March 2022 and began to increase again in March 2024. It is currently $21.17 trillion in the United States, up 2% over the last six months

The implications for bitcoin prices are extremely bullish, as many analysts have predicted that a crypto market bull run will begin in the fourth quarter.

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