Analyst Warns Bitcoin Could Drop 20% if It Continues Correlation with M2 Money Supply

Bitcoin's long-standing correlation with the global M2 money supply suggests it could experience a significant retracement, potentially dropping 20%, according to an analyst.

Joe Consorti, head of growth at Theya Bitcoin, shared his concerns in a Nov. 26 post on X (formerly Twitter), noting that Bitcoin's price movements have closely tracked the M2 money supply — a measure of cash and short-term bank deposits — with a "70-day lag" since September 2023.

“Thus far, the correlation has been surprisingly accurate,” Consorti stated, adding that if this pattern holds, Bitcoin could see a correction before reaching the $100,000 mark. "We’ll have to see if Bitcoin follows it all the way down or stops short and finds support," he remarked.

Historically, Bitcoin’s price has risen alongside increases in M2, as expanding money supply often signals inflationary pressures. In such scenarios, investors tend to turn to riskier assets like Bitcoin as a hedge against inflation.

However, Consorti warned that if Bitcoin continues to track M2, the cryptocurrency could face a 20-25% correction, potentially bringing its price down toward $70,000.

Macroeconomist Lyn Alden also noted in a September 2024 report that Bitcoin tends to move in line with global liquidity about 83% of the time over a 12-month period, further strengthening the idea of a potential M2-driven correction.

Not everyone agrees with this outlook, however. Some analysts believe that Bitcoin’s volatility makes it difficult to draw clear correlations with the M2 supply. Market commentator David Quintieri dismissed the idea, saying, "Bitcoin is too volatile to track against anything," and suggesting that comparisons with the stock market might be more realistic.

Glassnode lead analyst James Check also offered a different perspective, pointing out that much of the recent decline in the M2 supply is linked to the strength of the US dollar, which he believes "effectively devalues the M2 of the rest of the world."

Crypto commentator Sam KB also questioned the M2 correlation, noting that Bitcoin had historically risen when M2 reached new highs, but this cycle appears to be different. "M2 is nearly at the lowest point this cycle... but Bitcoin is rallying. What am I missing?" he posted on Nov. 22.

Some analysts, however, believe that macroeconomic factors like potential tariffs from President-elect Donald Trump's administration could strengthen the US dollar, which historically puts pressure on risky assets like Bitcoin. Hedge fund manager Scott Bessent, in Nov. 5 Bloomberg interview, suggested that tariffs often lead to a stronger dollar, creating an "economic abnormality" if paired with weaker assets.

As of the time of publication, Bitcoin was trading at $91,988, just days after nearly reaching the coveted $100,000 price point. The cryptocurrency's current peak of $99,571 was reached on Nov. 23.