Bitcoin Update: Global M2 Correlation, Market Inefficiency, & Perpetual Dominance
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Cliff-Notes:
- Bitcoin’s directional correlation with global M2 has tightened again, confirming its price remains heavily influenced by the conditions of global money supply and balance sheet capacity.
- Bitcoin dumped 8.5% in six days after the US Strategic Bitcoin Reserve was formally announced—an irrational reaction highlighting major inefficiencies in pricing bitcoin’s geopolitical importance.
- Hammer candlesticks signal bitcoin is in the process of forming a local bottom, while record-low ETH/BTC levels & rising bitcoin dominance, regardless of its spot price, point to a now permanent, perpetually strengthening bitcoin-only market structure.
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Bitcoin’s directional correlation with global M2 has once again tightened after a brief break. This has always been a loose pattern—however, bitcoin has tracked global M2 on a ~70-day lag with a very tight correlation this cycle, a reflection of its increasing sensitivity to global money supply trends. While this relationship isn’t a direct cause-and-effect mechanism, it continues to provide a useful macro framework.
Global M2 inflected lower several months ago due to a bout of US dollar strength, and bitcoin has started to loosely follow that trajectory after bucking it for a few months, dropping to $78,000 on Monday—just $8,000 away from fully converging with the path that M2 set roughly 70 days ago.
The takeaway? Bitcoin remains the ultimate monetary asset in a world where money supply, balance sheet capacity, and credit are perpetually expanding. As global money supply expands, bitcoin tends to follow it, at least directionally. But this cycle is seeing additional variables that make M2 a less reliable standalone indicator, such as the US dollar being historically strong, creating a drag on global M2 denominated in USD, and more accurate measures of money supply and liquidity coming onto the scene.
USD strength should have dragged bitcoin down during January and March, but instead, its price resilience was fueled by bitcoin-native catalysts such as Trump’s inauguration momentum and speculation in advance of his announcement and establishment of the Strategic Bitcoin Reserve (SBR). Take a look at how well bitcoin managed to fend for itself despite the global M2 drawdown over those two months:
That’s what makes bitcoin’s price reaction to the SBR announcement all the more perplexing.
When the US formally announced the establishment of the Strategic Bitcoin Reserve (SBR) last Thursday, bitcoin sold off very aggressively, falling 3.5% in the hour following the news and now down 8.5% over the past six days.
The market is missing the bigger picture. Executive Order 14233 tasks the Treasury and Commerce Departments with developing budget-neutral strategies to increase the US’ BTC holdings. That’s 198,109 BTC and counting. The key phrase in the order is 'budget-neutral', meaning policymakers are now actively figuring out how to accumulate bitcoin without spending new money—which not only means that new purchases will come at net-zero cost to taxpayers, but they also won't require Congressional authorization.
For comparison, when El Salvador first announced its bitcoin legal tender law and began accumulating shortly thereafter, bitcoin's price went on to rise in the months that followed. When MicroStrategy announced its buying program and subsequently revealed its first purchases, bitcoin's price rose. This time the reaction has been the opposite—traders aren’t just slow to digest the implications, they’re outright mispricing it.
Part of this reaction can be attributed to short-term positioning—many traders were expecting the announcement and likely took profits when the news dropped. A "sell-the-news" event. But the magnitude of the selloff indicates a complete failure to price in the long-term implications of this policy shift. The SBR directive is the first domino in what will be a geopolitical bitcoin accumulation race. If the US is openly discussing BTC accumulation, other sovereign players—particularly those seeking alternatives to US dollar hegemony such as Russia and China—will accelerate their own bitcoin strategies. The market is treating it like a non-event, but that informational asymmetry probably won’t last long.
While traders are mispricing the SBR announcement, bitcoin’s technical picture is showing clear signs of bottoming.
Bitcoin dropped to $78,000 on Monday and briefly wicked down to $77,000 before rebounding—solidifying that level as a major support zone. This is key because the $86,000-$76,000 gap, which I’ve highlighted in previous posts, has now largely been filled. Price has backtested the lower bound of that range, and buyers have stepped in aggressively, establishing volume where there was none previously. A few critical technical signals confirm that we’re likely in the process of forming a local bottom: bitcoin rejected a break below $77,000, and two of the last three weekly closes have printed large hammer candlesticks.
Historical precedent suggests that bitcoin forms these patterns at cycle turning points. As bitcoin forms local bottoms during consolidation periods in bull markets, these hammer candlesticks form, with large lower shadows that grow in size as consolidation progresses—I've marked this progression with two white arrows in the chart down below. Buyers aggressively defend technical levels during extremely short periods, averting large selloffs and creating the handle of the hammer.
The last time we saw this exact price structure was during the tail end of bitcoin’s summer 2024 consolidation, two months before it surged from $57,000 to $108,000. The market is now setting up in similar fashion:
At the same time, bitcoin’s dominance continues to climb. This cycle, whether bitcoin is up or down on any given day, dominance is rising—a clear sign that capital is exiting alternative "crypto" and flowing into bitcoin exclusively. This bucks a tried and true trend of prior cycles, cementing a market structure of now perpetually-rising dominance, and a delineation between "crypto" and bitcoin:
For the market's shortsighted reaction to the establishment of an SBR, it is efficiently pricing one area of the market. ETH/BTC has now dropped to 0.0227, its lowest level in 1,755 days—breaking below levels last seen in May 2020.
Since July 27th, when Trump announced the United States SBR, then dubbed a 'Strategic National Bitcoin Stockpile' at the Bitcoin Conference, the ETH/BTC ratio has fallen 50.8%, while the AUM ratio between US-based spot Ethereum and bitcoin ETFs has collapsed 56.8%—a 6% relative underperformance, confirming that institutional demand for ETH is vanishing even faster than retail appetite. This cycle belongs to bitcoin, and all future cycles will only further cement this reality. "Alt-season" is no more:
Bitcoin’s market reaction to the SBR announcement is a textbook case of mispricing, something rather foreign to the (relatively) high-information market that is bitcoin. The US government is now actively strategizing bitcoin accumulation, other nations are now seriously considering the same, yet traders are selling off. While likely a case of high beta to the rest of the risk market, which is tanking as of late, it remains odd that this isn't a strong enough bitcoin-native event in the eyes of the market for a transient period of decoupling.
This kind of short-term thinking creates opportunities. We’ve seen it before—when MicroStrategy started stacking, when El Salvador embraced bitcoin, when spot ETFs were approved in the United States. The market may initially react with confusion, then corrects higher when the informational arbitrage closes.
The US Strategic Bitcoin Reserve is a historic development. The current price levels will look like a gift in hindsight.
Take it easy,
Joe Consorti
Theya is the simplest way to take full control of your bitcoin. With our flexible multi-sig vaults, you decide how to secure your keys.
Whether you prefer keeping all keys offline, shared custody with trusted contacts, or robust mobile vaults across multiple devices, it's always Your Keys, Your Bitcoin.