Raoul Pal, the CEO of Real Vision, a financial media platform, has suggested that the rise in the total money supply (M2) could potentially fuel a new bull market rally for cryptocurrencies, potentially allowing them to outperform traditional financial markets. Pal highlighted this perspective in a post on X (formerly known as Twitter), illustrating a chart that correlates the increase in fiat market supply with the start of cryptocurrency bull runs.
The chart compares Bitcoin's annual performance relative to the global M2 money supply, demonstrating that Bitcoin's price tends to move in tandem with the expansion of the M2 supply. Historically, cryptocurrency markets, particularly Bitcoin, have exhibited better performance relative to traditional financial markets as the global M2 money supply grows. The chart reflects that Bitcoin's price appears to be on the verge of decoupling from traditional markets as the M2 supply increases, a pattern that has been observed in previous years, resulting in substantial Bitcoin price surges in 2021, 2017, and 2014.
Pal expressed his enthusiasm for the relationship between global M2 and cryptocurrencies, stating that he "likes Global M2." He indicated that Bitcoin is currently outperforming the Nasdaq (NDX), and he expects cryptocurrencies to become exceptionally strong performers.
M2, as defined by the Federal Reserve, represents the total money in circulation, encompassing cash held by individuals, funds in savings and checking accounts, and other short-term savings instruments like certificates of deposit. While Bitcoin's bull runs have historically been linked to block reward halvings every four years, with the next one anticipated in April 2024, this is not the sole driver behind the surges. Macroeconomic factors also contribute to these fluctuations.
Over the past decade, Bitcoin's price has surged alongside rapid M2 growth, coinciding with events like interest rate cuts, quantitative easing, and fiscal stimulus. Conversely, when central banks have tightened monetary policy, the cryptocurrency market has faced difficulties in gaining bullish momentum. For instance, the 2021 bull market aligns with aggregate M2 growth of 6% or more from major central banks like the Federal Reserve, the European Central Bank, the Bank of Japan, and the People's Bank of China (PBOC).
