The M2 money supply in the United States has reached new historic highs, raising alarms about the economy of that country. This means there has never been so much money in circulation, which harms the outlook for the currency and the nation. This particularly affects Bitcoin and the rest of the cryptocurrencies.
According to recently published data by the X account of The Kobeissi Letter, in May the US M2 reached $21.94 trillion. This includes the amount of cash, savings accounts, checking accounts, and deposits up to the end of May.
Year-on-year, the growth of the M2 supply in the North American country was no less than 4.5%. According to the aforementioned account, the recent increase recorded in May represents the nineteenth consecutive month with increases in M2. Additionally, it leaves behind the previous record of $21.86 trillion from March 2022.
Meanwhile, inflation-adjusted M2 increased by 2.1% during the same period, which sharpens the drama. The increase in supply positively affects, at least in theory, the price of Bitcoin, since there are more dollars available for a limited number of BTC. However, in practice, the issue could also have counterproductive consequences for the pioneering cryptocurrency.
Does the weakness of the US economy hurt Bitcoin?
According to major leaders in the crypto industry like Brian Armstrong of Coinbase, a strong Bitcoin with a weak economy is not entirely positive. The troubled economy resulting from the negative state of the dollar prevents millions of people from accessing Bitcoin.
Consequently, in troubled times or weak economies, people flee from risk to focus on safe assets. Although Bitcoin is presented as digital gold, this role is still not consolidated. Thus, when problems arise, capital seeks safety and abandons risk assets to seek protection in gold or silver.
At the same time, projects in the crypto sector, such as decentralized finance protocols, memecoins, NFTs, and others would also suffer from the drought. In simple terms, the strength of Bitcoin and the rest of the crypto sector needs the MAGA ideal to fulfill its promises of boosting the US economy.
In any case, the performance of the dollar has remained poor since Donald Trump took office. The same TKL account notes that the dollar index is at its worst point since 1986. Moreover, the chart suggests that if this trend continues, it could even be worse than the poor performance of 1973.
In the short term, dollar weakness will likely benefit Bitcoin, but lasting effects could have negative consequences. For the more orthodox BTC enthusiasts, the currency is indifferent to what happens with the economy, as it does not depend on the dollar, but is precisely an alternative for people to escape the ongoing weakening of fiat money.
