The cryptocurrency market has historically thrived alongside the expansion of the global money supply, with previous bull runs aligning with increases in fiat currency circulation. Raoul Pal, the CEO of Real Vision, suggests that the current upward trend in the total money supply (M2) could potentially trigger another crypto bull rally, allowing digital assets to outperform traditional financial markets.
In a recent post, Pal highlighted the correlation between the rising fiat currency supply and the start of crypto bull markets. The chart accompanying his analysis illustrates the yearly performance of Bitcoin in relation to the global M2 money supply. It shows how Bitcoin and the cryptocurrency market tend to outperform traditional financial markets during periods of increasing M2 supply. This trend was observed in 2021, 2017, and 2014.
Source: Global Macro Investor
M2 represents the total amount estimated by the United States Federal Reserve to be in circulation, encompassing all cash held by individuals and the money deposited in savings accounts, checking accounts, and other short-term savings instruments like certificates of deposit.
While Bitcoin’s bull runs are often associated with its block reward halving that occurs every four years, reducing the market supply of BTC in the face of rising demand, this is not the sole factor driving the price surge. Various macroeconomic factors also play crucial roles.
Over the past decade, Bitcoin has witnessed substantial price gains during periods of rapid M2 growth. This can be attributed to decreases in interest rates, quantitative easing, and fiscal stimulus measures. Conversely, when central banks adopt monetary tightening policies, the cryptocurrency market has struggled to gain bullish momentum. The 2021 bull market, for instance, coincided with M2 growth rates of 6% or higher at central banks like the Fed, European Central Bank, Bank of Japan, and People’s Bank of China.