Why the Price of Bitcoin Is Going Up: A Deep Dive into M2 Money Supply and Global Liquidity

Why Bitcoin is on the Rise

Over the past several months, Bitcoin has seen a significant upward movement in its price, attracting attention from investors, economists, and policymakers alike. While the rise can be attributed to a variety of factors—such as growing institutional adoption, technological advancements, and geopolitical tensions—two critical and often under-discussed economic indicators are playing a foundational role: the M2 money supply and global liquidity.

Understanding how these monetary phenomena influence the price of Bitcoin requires an exploration of what M2 and global liquidity are, how they function, and why their recent trends are pushing capital toward Bitcoin and other scarce digital assets.

What Is the M2 Money Supply?

M2 is a classification of the money supply that includes:

• M1: Physical cash and coin, checking accounts, and other liquid forms of money.

• Savings deposits

• Money market securities

• Certificates of deposit (under $100,000)

In essence, M2 represents all the money that households and businesses can readily access and spend or convert into cash quickly. It’s broader than M1 and gives a fuller picture of the liquidity available in an economy.

Central banks, particularly the U.S. Federal Reserve, use M2 to gauge monetary policy effectiveness and assess inflation risk. When central banks increase M2—usually by lowering interest rates or through quantitative easing (QE)—they are effectively injecting more money into the economy to stimulate spending and investment.

What Is Global Liquidity?

Global liquidity refers to the total volume of financial capital available in the world’s economic system. It includes central bank money, bank credit, shadow banking instruments, and cross-border capital flows. Key components include:

• Central bank balance sheets (e.g., the Federal Reserve, European Central Bank, Bank of Japan)

• International banking system liquidity

• Capital available for investment across borders

Global liquidity expands when central banks ease monetary policy or when commercial banks increase lending. It contracts when interest rates rise or when financial regulation tightens. Global liquidity is essentially the oxygen of the financial system: when it increases, asset prices tend to rise across the board—including stocks, real estate, and cryptocurrencies like Bitcoin.

Recent Trends in M2 and Global Liquidity

1. Resurgence in M2 Growth

During the COVID-19 pandemic, the U.S. Federal Reserve and other central banks around the world expanded their balance sheets dramatically to support economies in lockdown. In the United States, the M2 money supply increased by more than 40% between 2020 and 2022.

While the Fed began tightening monetary policy in 2022 to combat inflation—raising interest rates and reducing its balance sheet (quantitative tightening or QT)—M2 growth did not return to pre-pandemic norms. As inflation cooled and fears of a hard recession loomed in 2023 and into 2024, central banks adopted a more accommodative stance once again.

By 2024 and into 2025, we began to see renewed M2 growth—not as explosive as during the pandemic, but significant enough to increase liquidity in the system. In countries like Japan and China, monetary stimulus efforts further bolstered global money supply, driving capital into risk assets.

2. Global Liquidity Expansion

Several factors have contributed to rising global liquidity:

• Rate Cuts and Easing Measures: The Federal Reserve has signaled a pivot from aggressive rate hikes toward rate stabilization or cuts. The European Central Bank and others are following suit.

• Fiscal Stimulus: Governments, especially in election years or during economic slowdowns, tend to ramp up spending, increasing the amount of money in circulation.

• Cross-Border Investment Flows: As geopolitical risks rise and regional economies stagnate, investors diversify capital globally—much of which flows into liquid and highly mobile assets like Bitcoin.

A useful proxy for global liquidity is the combined balance sheet of major central banks (the Fed, ECB, Bank of Japan, and People's Bank of China). Recent data shows that after a brief decline in 2022–2023, global central bank balance sheets are once again growing—injecting more liquidity into financial markets.

Why This Drives Up the Price of Bitcoin

Now that we understand M2 and global liquidity, let’s connect the dots to Bitcoin.

1. Bitcoin as a Hedge Against Fiat Dilution

When central banks increase the M2 money supply, the value of fiat currency effectively declines. While this doesn’t always translate immediately into consumer inflation, it does mean that more money is chasing the same amount of goods and assets—especially scarce ones like Bitcoin.

Bitcoin, with a hard cap of 21 million coins, is often referred to as “digital gold.” It is deflationary by design: supply cannot be increased regardless of monetary policy. When M2 grows, investors look for ways to store value in assets not susceptible to inflation, and Bitcoin becomes an appealing alternative.

2. Liquidity Fuels Speculation and Investment

Rising global liquidity means there is more capital looking for returns. In low-interest-rate environments, cash and bonds yield little to no return. Investors then move capital into equities, commodities, real estate, and—crucially—cryptocurrencies.

Bitcoin benefits more than most other assets because:

• It is globally accessible 24/7

• It has deep liquidity and high volatility (attractive to traders)

• It has growing institutional acceptance

• It is increasingly seen as a macro hedge against fiat debasement

3. Bitcoin Correlation with Global Liquidity

Multiple studies and market analyses have shown that Bitcoin’s price has a strong correlation with global liquidity cycles. When liquidity increases, Bitcoin tends to rally; when it contracts, Bitcoin suffers.

Consider the following historical correlations:

• 2020–2021 Bull Market: Bitcoin surged from ~$8,000 to over $60,000 as M2 and global liquidity exploded.

• 2022 Bear Market: Bitcoin plummeted as the Fed and other central banks tightened policy and drained liquidity.

• 2024–2025 Rebound: As global liquidity rebounds, Bitcoin has once again broken key resistance levels, moving toward new all-time highs.

  
  

Structural Changes Supporting This Trend

Several structural changes in the financial system amplify the influence of M2 and global liquidity on Bitcoin:

1. Spot Bitcoin ETFs and Institutional Adoption

Increased access through regulated investment vehicles—like U.S.-based spot Bitcoin ETFs—has enabled billions in institutional capital to flow into Bitcoin. Institutions are more responsive to macroeconomic signals such as central bank policy and liquidity trends. As global liquidity improves, fund managers have more tools and incentives to include Bitcoin in their portfolios.

2. Reduced Trust in Central Banks

Years of inflation overshoots, currency crises (like in Argentina and Lebanon), and geopolitical conflicts have eroded trust in fiat currencies and central bank independence. As people seek neutral, decentralized assets, Bitcoin becomes a more compelling long-term store of value.

3. Digital Infrastructure and On-Ramps

Easier access to Bitcoin through apps, exchanges, and payment platforms has made it more accessible to retail investors worldwide. With rising M2 and more disposable cash in economies like the U.S., this access fuels demand.

Bitcoin as the Ultimate Liquidity Barometer

The rising price of Bitcoin in 2025 is not an isolated phenomenon. It is part of a broader macroeconomic narrative driven by the dynamics of money supply and liquidity. As central banks and governments continue to inject capital into the system—whether to avoid recession, support banks, or stimulate growth—Bitcoin stands as a magnet for excess liquidity.

Its scarcity, neutrality, and global accessibility make it a prime candidate for investors looking to escape the risks associated with currency debasement and centralized monetary policy.

In the years ahead, as the world navigates a complex environment of shifting interest rates, political uncertainty, and technological disruption, the relationship between M2, global liquidity, and Bitcoin is likely to become even more pronounced.

Bitcoin may not just be a speculative asset anymore—it’s becoming a barometer of global monetary health. And right now, that barometer is pointing up.