M2 is a measure of the money supply in an economy, and it's important because it reflects the liquidity available in the financial system — which can influence asset prices, including cryptocurrencies.
What is M2?
M2 is a monetary aggregate tracked by central banks like the Federal Reserve in the U.S. It includes:
M1: Physical cash + checking accounts + other liquid deposits.
Savings accounts
Money market securities
Certificates of deposit (under $100,000)
So, M2 = M1 + "near money" (liquid but not as easily spendable).
How M2 Relates to the Crypto Market
Liquidity Drives Investment: When M2 is increasing, there's more money circulating — this often leads to more risk-taking and investment in assets like crypto.
Inflation Hedge Narrative: If M2 grows too fast, it can signal inflation risks. Some investors turn to Bitcoin and other cryptos as a hedge against fiat currency debasement.
Quantitative Easing (QE): During periods of QE,central banks inject liquidity into the economy, increasing M2. Historically, major crypto bull runs (e.g., 2020–2021) have aligned with aggressive QE and M2 growth.
Tightening Hurts Crypto: When central banks fight inflation by reducing M2 (via interest rate hikes or QT), it tends to reduce crypto market momentum.
