tl;dr
Bitcoin's unexpected lag against M2 money supply growth and its struggle to capitalize on a weakening dollar have left analysts questioning its role as 'digital gold.' While gold mirrors macroeconomic shifts, Bitcoin's sideways trade raises debates about its future as a hedge or speculative asset.
Bitcoin’s recent performance has left even seasoned analysts scratching their heads. While global money supply swells and the U.S. dollar weakens, the leading cryptocurrency hasn’t followed the expected path. Instead, it’s lagging behind M2 money supply growth by a staggering 70 days—a gap not seen since May, according to Joe Consorti, head of growth at Theya. Meanwhile, gold remains tightly aligned with macroeconomic shifts, raising questions about Bitcoin’s role as a "digital gold" alternative.
The M2 money supply, a measure of liquid assets including cash, savings, and short-term investments, hit an all-time high of $22.2 trillion in the U.S. this week. Central banks’ aggressive monetary easing since early 2024 has injected over 7% more liquidity into the system, a process critics call “relentless debasement” as each new dollar dilutes the value of existing ones. Normally, such expansion fuels demand for riskier assets like crypto. Yet Bitcoin has traded sideways for three months, hovering 9% below its all-time high.
Consorti attributes this divergence to shifting market dynamics. “Gold is high beta risk-off, BTC is high beta risk-on,” he explained, highlighting how gold typically rallies during crises while Bitcoin reacts to bullish sentiment. But with global markets bracing for geopolitical tensions and a weakening dollar—down 12% this year against a basket of currencies—Bitcoin’s lackluster performance is puzzling.
The dollar’s slump should theoretically boost Bitcoin, as a weaker greenback makes crypto more attractive to international investors. Yet the asset has struggled to break through key resistance levels. On Wednesday, Bitcoin approached $114,000 but retreated, settling at $111,700. It’s now down 4.5% over the past week, testing a critical support level. Analysts warn that without renewed momentum, the September correction could deepen.
Critics like gold advocate Peter Schiff argue Bitcoin is in a bear market, citing a 20% drop against gold since August. But this narrative overlooks Bitcoin’s 78% 12-month gain versus gold’s 42% rise. The disparity underscores a broader debate: Is Bitcoin a speculative tech stock or a hedge against fiat depreciation?
As the market grapples with these questions, one thing is clear—Bitcoin’s relationship with traditional macro indicators is evolving. While gold remains a reliable barometer of inflation and risk aversion, Bitcoin’s behavior suggests it’s increasingly influenced by tech-sector sentiment and speculative cycles. For investors, the lesson is simple: In a world of shifting correlations, understanding the "why" behind price movements matters more than ever.
What’s your take? Is Bitcoin still a hedge, or has it become a high-risk bet on innovation?