Closely followed analyst Lyn Alden says one macroeconomic factor could signal the end of Bitcoin’s (BTC) bear market.
In a new interview with market analyst Alessio Rastani, Alden says that Bitcoin’s performance is tightly correlated with the expansion or deceleration of global money supply (M2).
M2 money supply roughly refers to the total amount of currency in circulation, plus near money, or highly liquid non-cash assets that can be easily converted to cash.
“When global money supply measured in dollars is going up pretty rapidly, that’s a great environment for Bitcoin. When it’s going down, when basically that year-over-year rate is rolling over or even stops growing entirely, that’s usually a pretty bad environment for Bitcoin. And in that sense, what Bitcoin is hedging is not price inflation, but monetary inflation, or debasement. It’s basically one of the more pure plays on liquidity.
That’s probably the key thing to watch. What’s happening with liquidity, and what’s happening with the rate of change in economic growth?
I do think that when you have falling liquidity and economic deceleration, yes, you’d expect Bitcoin to do pretty poorly, which we’ve seen especially over the past six months. Then when you have a bottoming out of liquidity, monetary easing and you’re in the middle of the recession maybe turning up, that’s when I would expect probably Bitcoin to catch a bottom and do pretty well.”
Macro guru Raoul Pal shares the exact same sentiment. Last month, Pal said that the crypto markets are largely driven by the liquidity that comes from M2 money supply.
“Crypto isn’t driven by the business cycle, but it’s driven by global liquidity.”
At time of writing, Bitcoin is swapping hands for $23,859, a 2.82% increase on the day.