Crypto Rally 2.0? US M2 Money Supply at Record Highs - Coinspeaker

Key Notes

• The US M2 money supply has reached an all-time high of $21.94 trillion, growing 4.5% year over year.
• BTC remains inside a descending channel since its $112K peak but shows resilience above key levels.
• The increase in M2 money supply indicates increased liquidity that could boost risk assets like Bitcoin.

The M2 money supply, a broad gauge of circulating currency including cash, checking deposits, and money market funds, just surpassed its previous peak from March 2022. Year-on-year growth is now at 4.5%, the highest in 3 years, signaling a resurgence in liquidity.

Historically, increases in M2 have preceded inflation. The 2020 rise in M2 contributed to higher inflation in 2021, leading to tighter monetary policy.

Now, as M2 growth picks up again, investors are bracing for potential inflationary pressure, a situation that complicates the Federal Reserve’s ability to cut rates, especially with political pressure mounting to lower them to 1% as proposed by US President Donald Trump.

Bitcoin: channel-bound but resilient

With M2 supply rising, more liquidity means more risk appetite. On the other, the looming threat of inflation and tighter policy could spook markets. Bitcoin

BTC $107 556

24h volatility: 1.0%

Market cap: $2.14 T

Vol. 24h: $28.28 B

has been trading inside a descending channel since peaking at $112,000 in May.

Pullbacks have been shallow, with recent price action showing resilience above $105,000. A key CME futures gap at $106K was recently filled, and Bitcoin still trades above its one-month realized price, suggesting short-term holders remain in profit.

Futures show fading institutional appetite

CME Bitcoin futures, a strong indicator of institutional sentiment, unveils further insight.

The premium on three-month rolling futures has dropped to 4.3%, the lowest since October 2023, down from over 10% earlier this year, according to research from 10xResearch. Perpetual futures funding rates have also flipped negative, indicating a growing short bias and a drop in speculative interest.

The decline in basis rates has eroded the appeal of cash-and-carry arbitrage, reducing activity from hedge funds that traditionally help drive inflows during bullish periods.

Related article: Bitcoin ETFs See First Outflows in 15 Days as BTC Price Struggles Above $107KAs a result, it is clear that without strong institutional backing, any rally could remain shallow unless retail sentiment and volume pick up dramatically.

What comes next?

The crypto market sits at a crossroads. The record-high M2 money supply could act as a tailwind, especially if rate cuts eventually materialize. But the current bearish channel in Bitcoin, paired with declining institutional futures activity, tempers near-term expectations.

Still, historical data suggests M2 spikes tend to feed into asset prices after a lag. If inflation remains tame and Fed policy loosens, Crypto Rally 2.0 could be a question of when, not if.

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