The growing money supply in the United States could be the key to unlocking more upward momentum for Bitcoin. Analysts are eyeing a less conventional indicator to predict Bitcoin’s trajectory: the M2 money supply.
M2 Money Supply Growth
The M2 money supply estimates all cash and short-term bank deposits across the United States, and its growth has historically been correlated with previous Bitcoin bull runs. According to Jamie Coutts, chief crypto analyst at Realvision, the money supply growth could hold the key for the next leg up for the Bitcoin cycle. However, the changes in the money supply seem more important for Bitcoin price than the nominal value.
The amount of money required will not be the most crucial point to this change, but the rate at which the amount is set. Coutts underlines that the speed of the M2 volume variations and Bitcoin price interrelations are the most significant factors here rather than absolute quantities. The central banks view a rise in this reading as a positive signal of a potential improvement in conditions. Developments related to the M2 money supply have become so significant that even investors cannot resist paying attention.
Source: Cointelegraph
At the beginning of May, the M2 money supply turned positive year-over-year for the first time since November 2023, signaling that investors could soon start looking for hedges against inflation, such as Bitcoin. The price action of the U.S. dollar could be another catalyst for Bitcoin’s price if it breaks below the 101 mark.
Source: Cointelegraph
Bitcoin Breaks Month-Long Downtrend
According to popular crypto analyst Rekt Capital, Bitcoin broke its month-long daily downtrend on May 16. On the four-hour chart, the Bitcoin price saw a breakout to the upside after a nearly five-week downtrend that started on April 8.
Source: TradingView
However, Bitcoin’s relative strength index (RSI) peaked at 69.38 today, on May 17. The RSI is a popular momentum indicator used to measure whether an asset is oversold or overbought based on the magnitude of recent price changes.
Bitcoin (BTC) Price
At the time, Bitcoin (BTC) is trading at $66,343. Its trading volume is $29,003,970,052 in the last 24 hours, and its market capitalization is $1,307,321,893,475.
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Source: TradingView
Impact on Market and Asset Prices
Market Implications
The correlation between the M2 money supply and Bitcoin’s price movement indicates a significant relationship between macroeconomic factors and cryptocurrency trends. As the M2 money supply grows, signaling increased liquidity in the market, investors might seek assets like Bitcoin as a hedge against inflation. This trend could drive more institutional and retail interest in Bitcoin, enhancing its status as a digital store of value. If the M2 money supply continues to rise, we could see a broader acceptance and adoption of Bitcoin, potentially leading to increased market stability and maturity in the cryptocurrency sector.
Asset Price Implications
The increase in the M2 money supply turning positive year-over-year suggests potential bullish momentum for Bitcoin. This economic indicator could lead to a rise in Bitcoin’s price as investors look for inflation hedges. The breaking of Bitcoin’s month-long downtrend further supports a positive outlook, with technical indicators showing potential for price gains. Additionally, if the U.S. dollar weakens, it could further boost Bitcoin’s value as investors seek alternative assets. However, investors must monitor the speed of changes in the M2 money supply and related economic factors to understand the potential impact on Bitcoin’s price trajectory.
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