On September 25, Investment Strategy founder Lyn Alden announced that she had recently commissioned a research paper that measured global money supply relative to other asset classes.

Alden’s paper found that Bitcoin moves toward the global money supply (M2) 83% of the time, more often than other assets.

The paper noted that Bitcoin has demonstrated a strong correlation with global liquidity, making it a potential “liquidity barometer.”

Bitcoin Liquidity Barometer

As global liquidity, as measured by metrics like the M2 money supply, expands, Bitcoin’s price tends to rise; conversely, it tends to fall when liquidity contracts.

Over the study period from May 2013 to July 2024, the correlation coefficient with global liquidity was 0.94, indicating a highly sensitive relationship.

M2 money is a measure of the money supply that includes cash, checking deposits, and easily convertible “near-money.” It covers M1 money, including physical currency, savings accounts, and short-term deposits. It is also used as an indicator of the amount of money available in the economy, which affects inflation, interest rates, and overall economic activity.

Comparing other assets, Alden noted that stocks have returns that can affect their correlation, and gold has a “safety net” that can affect its correlation.

“Bitcoin is seen as a risk asset to gold, essentially. So it has the highest correlation.”

The researchers found that Bitcoin’s strong correlation with global liquidity is due to its high volatility, which can distort its short-term correlations.

The paper concluded that this correlation with global liquidity makes Bitcoin “a valuable macroeconomic barometer for investors and traders.”

“You can think of Bitcoin as a mirror that reflects the rate of global money creation and the relative strength of the dollar.”

Earlier this year, Lyn Alden predicted that the price of BTC would reach $200,000 within two years.

Earlier this week, market analyst Game of Trades told his 247,000 X subscribers that the M2 money supply was starting to expand after reaching its deepest contraction since 1960.

According to the St. Louis Federal Reserve, the M2 money supply began contracting in March 2022 and began to expand again in March 2024. It currently stands at $21.17 trillion in the United States, up 2% over the past six months.