Bitcoin is trading at levels that many analysts consider “completely mispriced” when measured against the global M2 money supply, indicating a likely strong price correction ahead. This assessment stems from the historically positive relationship between Bitcoin’s value and global liquidity, particularly the M2 money supply, which encompasses cash, checking deposits, and easily convertible near money.
Data shows Bitcoin’s current valuation relative to gold, measured as the BTC-to-gold ratio, plunging well below its fair liquidity value. This deviation is extreme enough to register a rare negative “Z-score” close to -2, a statistical signal that has not occurred before and suggests maximum undervaluation. According to this model, Bitcoin should experience an “aggressive repricing” upward to realign with the expansion in global money supply.
However, some experts question the robustness of this correlation. Critics highlight methodological issues, such as the absence of daily M2 data and the heavy influence of China’s continually increasing M2 figures on the aggregate data. They also note timing mismatches with Bitcoin’s recent bear markets; for example, M2 peaked after Bitcoin’s bottom was reached in 2022, suggesting that relying on M2 trends for timing market moves could be misleading.
Additional skepticism revolves around Bitcoin’s well-known four-year price cycle, which some analysts argue overrides liquidity-based models. Supporters of the cycle theory point out that Bitcoin’s last major price peak occurred before the current rise in M2, implying that factors other than money supply growth might dominate Bitcoin’s price formation.
Despite these contrasting views, the recent divergence between crypto markets and global equities—where stocks continue to hit record highs—adds complexity to interpreting Bitcoin’s price dynamics in relation to macroeconomic variables. This disconnect suggests that external market forces and investor sentiment could also significantly impact Bitcoin’s trajectory going forward.