Bitcoin’s Break from Global M2: U.S. Treasury Actions Under Scrutiny
In the ever-volatile world of cryptocurrency, Bitcoin’s recent detachment from its historical correlation with the global M2 money supply has sparked a flurry of discussions. Raoul Pal, the astute founder of Global Macro Investor, has zeroed in on this anomaly, attributing the break to strategic maneuvers by the U.S. Treasury.
Following the Money Supply
For the uninitiated, Bitcoin’s price movements have long maintained a peculiar yet consistent relationship with the global M2 money supply—a broad measure of money circulating in the global economy. Traditionally, Bitcoin has mirrored changes in this monetary metric, albeit with a predictable 12-week delay. This correlation has fueled projections that Bitcoin could reach astronomical heights, potentially nearing $200,000 by the end of 2025 if the pattern persisted.
However, since mid-July, this harmonious dance between Bitcoin and global M2 has faltered. As global M2 continued its upward trajectory, signaling ongoing monetary expansion, Bitcoin has frustratingly stalled, moving sideways like an indecisive chess piece. This puzzling performance has left traders and analysts scratching their heads, wondering what external forces might be at play.
TGA Refill: The Unexpected Spoilsport
Raoul Pal points to the U.S. Treasury’s actions as a primary disruptor. Central to his argument is the Treasury General Account (TGA)—essentially the government’s checking account at the Federal Reserve. Typically, this account is used to manage inflows from taxes and bond sales while funding federal expenditures. However, in an effort to rebuild this account, the Treasury has embarked on a bond issuance spree, raising about $500 billion since July to replenish the TGA to a near record-high of $800 billion.
This aggressive bond issuance, Pal argues, has siphoned liquidity from the broader market, hitting liquidity-sensitive assets like cryptocurrencies the hardest. With less capital sloshing around, Bitcoin’s usual buoyancy has been anchored, leading to its recent stagnation despite rising M2.
A Path to Normalization?
There’s a silver lining, though. Pal believes the TGA is now sufficiently replenished, suggesting that the liquidity drain is drawing to a close. If liquidity conditions normalize as expected, Bitcoin’s rally could resume, aligning once again with its M2-driven upward trajectory. Investors and enthusiasts alike are keeping a close watch, hopeful for a bullish resurgence as the liquidity bottleneck eases.
Broader Market Signals
Yet, it’s crucial to consider the broader market context. While the TGA replenishment has undoubtedly weighed on crypto, it’s worth noting that other risk assets, such as tech stocks and gold, have continued to soar, setting new all-time highs. This divergence indicates that overall risk appetite remains robust, suggesting that other factors might also be affecting Bitcoin’s performance.
Some analysts speculate that the deviation could stem from heavy selling pressure from long-held Bitcoin assets, compounding the impact of the TGA’s liquidity drain. This selling pressure might be a reaction to the uncertainty surrounding regulatory and macroeconomic landscapes, prompting some investors to offload their holdings and seek safer havens.
Looking Ahead
As the end of September approaches, the crypto community is on tenterhooks, waiting to see if liquidity conditions will indeed normalize and reignite Bitcoin’s upward momentum. While Pal’s analysis offers a compelling explanation for the recent market dynamics, it’s essential to consider the multifaceted nature of the crypto ecosystem.
Bitcoin’s resilience has been tested many times before, and its ability to weather external shocks remains a testament to its enduring appeal. As markets continue to evolve, investors will need to stay vigilant, balancing optimism with caution as they navigate the complexities of the cryptocurrency landscape.
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
