Everybody shares about M2 and its similarity with $BTC
so why it matters for the market
1. What is money supply?
→ Simply put, it's the total money available in an economy (cash, bank savings, etc.) that can be used for spending or investing. Think of it like fuel for an economic engine: when there's enough, the economy grows; too much and inflation kicks in.
2. M0, M1, M2, M3 and MB:
- M0: Cash and reserves at the central bank.
- M1: M0 plus checking accounts.
- M2: M1 + savings, small deposits, and money market funds — the most widely tracked.
- M3: M2 + large deposits, usually slower-moving money.
- MB (Money Base): This includes M0 and also the stored portion of commercial bank reserves at the central bank. Both M0 and MB are incorporated in M1 and M2, which means they all tie into one another, affecting overall liquidity.
3. Why does money supply affect the market?
- More money = easier borrowing, more investments in assets like stocks and crypto.
- Less money = tight spending, higher borrowing costs, and lower asset prices.
Real-life examples:
- In 2020, the Fed increased M2 by nearly $4.2 trillion. Bitcoin shot from $7,000 to $29,000 and the S&P 500 rose from 3,230 to 3,756.
- In 2022, when the Fed raised interest rates and slowed down M2 growth, Bitcoin dropped from $69,000 to $16,000, and the Nasdaq lost 30%.
4. The M2 sweet spot
M2 is the key number to watch — it’s a better indicator of market liquidity than M0 or M1.
When M2 rises, the market tends to heat up. When it falls or levels off, the market contracts.
For instance, in 2020, M2 increased by 25%, and so did Bitcoin and stocks. But in 2022, M2 decreased for the first time since WWII, and the market felt the heat — crypto crashed, and stocks went bearish.
So, as an investor, if you want to get ahead of market shifts, keep an eye on M2. It’s your signal for when the market's about to pick up speed... or slow down.
