BTC plays a contradictory role in the transmission chain of macro liquidity to the crypto market.

Written by: Liu Jiao Chain

The chart below illustrates the correlation between global money supply (M2) and BTC prices, which has been mentioned multiple times in previous reports. The chart shows that 108 days after the global macro liquidity (M2 money supply) shifts, it remarkably aligns with BTC's trend. What underlying logic does this intriguing synchronicity imply?

The core logic of the model is how global macro liquidity transmits to BTC.

The global M2 indicator represents the total amount of money printed by central banks, reflecting the liquidity level in the market. When central banks print a large amount of money (such as the global monetary easing after the pandemic in 2020), this newly created currency does not immediately flow into the BTC market. The 108-day lag set in the chart attempts to capture the time difference for funds to flow from central banks' "easing" into the crypto market.

Data shows that as the statistical period extends, the correlation between the two significantly strengthens: the correlation coefficient over 30 days is only 52%, while the correlation over a 3-year period reaches 79.6%. This indicates that the relationship between BTC prices and monetary easing is not an immediate reaction but a resonance of medium to long-term trends. When market liquidity remains loose, some funds gradually seep into high-risk assets like BTC, but this process requires the restoration of investor confidence and the establishment of funding flow paths.

When the yellow arrow on the right side of the chart points to "possible breakthrough," the implied logic is: if the current global M2 continues to expand (such as the Bank of Japan's ongoing easing and the Federal Reserve pausing interest rate hikes), according to the 108-day transmission cycle, BTC may experience a new round of fund-driven increases in May 2025. This timing coincides with the point mentioned in Liu Jiao Chain's article "Breaking the Cocoon and Becoming a Butterfly" on February 14, 2025.

However, the model also reveals significant limitations. The small-scale rebound failure at the beginning of 2023 indicates that monetary supply alone cannot fully explain short-term fluctuations. At that time, although global M2 was still growing, the banking crisis in the U.S. led funds to temporarily flow into traditional safe-haven assets, causing BTC, as an emerging asset, to experience a liquidity siphoning effect. This reminds us that macro liquidity is a necessary condition affecting coin prices, but not a sufficient one.

Clearly, the current scale of the crypto market is still too small compared to the scale of global liquid assets.

BTC plays a contradictory role in the transmission chain of macro liquidity to the crypto market. On one hand, its fixed supply characteristic makes it viewed by some investors as an anti-inflation tool, and when expectations of fiat currency devaluation increase, funds may accelerate their inflow; on the other hand, it remains a high-risk asset, and when a liquidity crisis occurs in the market (such as during the initial outbreak of the pandemic in March 2020), investors will prioritize selling BTC for USD cash, leading to a synchronous decline with risk assets.

This dual attribute results in a nonlinear relationship between BTC and M2. The 79.6% correlation data over the past three years has actually undergone multiple "divergence - convergence" fluctuation tests. For example, during the policy crackdown on the mining industry in 2021, the policy shock briefly interrupted the transmission effect of monetary easing, but once the market digested the negative news, prices again aligned with the M2 curve. This indicates that the underlying logic of the model has resilience, but the specific transmission process can be disturbed by external variables such as geopolitical factors and regulatory policies.

For ordinary investors, the value of this model lies not in predicting specific price movements but in establishing a macro cognitive framework. When observing major economies collectively turning to easing (such as interest rate cuts and quantitative easing), it can be seen as a positive background signal for BTC in the medium to long term; conversely, when global central banks tighten monetary policy, one should be wary of the pressures brought by liquidity withdrawal. The high correlation over 1095 days (about 3 years) suggests that observing from a 3-year perspective may be more valuable than chasing short-term fluctuations.

At the same time, we must be cautious not to equate correlation with causation. BTC prices are also influenced by multiple factors such as halving cycles, on-chain technological evolution, and institutional participation. For instance, the BTC halving event in 2024 may create a dual boosting effect when combined with global M2 growth, but it may also be offset by changes in regulatory policies. Therefore, this model is more suitable as one piece of the puzzle for market analysis rather than the sole basis for decision-making.

Extending our thoughts from this chart, we may gain a clearer view of BTC's position in the contemporary financial system: it is both a product of global monetary overproduction and a challenger to the traditional financial order. The 108-day lag effect essentially reveals the efficiency and resistance of funds migrating from traditional markets to the crypto world. When mainstream financial institutions begin to include BTC in their asset allocation, this transmission cycle may shorten further; conversely, when a black swan event occurs, the lag period may be passively extended. Understanding this dynamic balance may be more valuable than merely focusing on price fluctuations.

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