Bitcoin's (CRYPTO: BTC) strong correlation with global M2 money supply has raised concerns of a potential price correction, according to Joe Consorti, Head of Growth at Theya (YC).
What Happened: Consorti highlighted Bitcoin's close relationship with global M2 money supply in a post on X on Dec.19, saying "Bitcoin has followed global M2 with extreme precision since September last year."
M2 refers to the broad measure of money in circulation, including cash, deposits, and near-liquid assets, and is often used as an indicator of economic liquidity.
Consorti noted Bitcoin's rally from $40,000 to over $100,000 coincided with a period of liquidity expansion.
However, with global M2 contracting in recent months, Consorti cautioned that Bitcoin could face a larger correction, potentially revisiting levels around $90,000 or even lower.
Bitcoin typically lags changes in M2 by approximately 10 weeks, making its correlation a reliable indicator of potential price movements.
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"Global liquidity has been contracting for the last six weeks, and Bitcoin historically follows this trend with a noticeable lag," Consorti noted.
Despite the risks, Consorti suggested that Bitcoin's price trajectory could diverge from M2 trends under the right conditions.
"Native buying pressure and favorable events could help Bitcoin decouple from global M2, though it remains uncertain for now," he said.
Consorti's analysis extends to the role of broader macroeconomic factors, including the U.S. Federal Reserve's monetary policy and fiscal stimulus measures.
While supportive conditions in the U.S. may provide a buffer, the contraction in global M2 and liquidity remains a key concern.
Later in a tweet, Consorti said, "Bitcoin is down ~$7,500 to $92,500, following global M2 (USD-denominated) to a T. Favorable BTC-native events could help buck this trend."
Update: 5 days after my last chart, bitcoin is down ~$7,500 to $92,500.
— Joe Consorti ️ (@JoeConsorti) December 23, 2024
Following global M2 (USD-denominated) to a T.
Largely a story of strong USD trouncing everything. Favorable BTC-native events like Trump's inauguration could help BTC buck this trend.
Merry Christmas pic.twitter.com/mcDd56nm1G
What's Next: While a correction is possible, Consorti maintains optimism about Bitcoin's long-term potential.
He pointed to increasing adoption, institutional interest, and structural demand as factors that could help stabilize Bitcoin's trajectory despite macroeconomic headwinds.
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