Bitcoin (BTC) price action continues to come under focus as analysts consider its correlation with the global M2 money supply.

A notable projection suggests the pioneer cryptocurrency may be at the cusp of a 20–25% correction, aligning with a recent contraction in M2 liquidity.

Why Bitcoin May Be Due for a 25% Correction

Bitcoin custody firm Theya’s head of growth, Joe Consorti, has highlighted Bitcoin’s close tracking of the global M2 with an approximately 70-day lag since September 2023. In a recent post on X (formerly Twitter), Consorti warned of a potential BTC pullback by 25% as it continues to track the global M2,

“I don’t want to alarm anyone, but if this trend continues, Bitcoin could experience a 20-25% correction,” Consorti said.

His analysis sets M2 data 70 days forward compared to Bitcoin’s price, revealing a worrying trajectory as global liquidity tightens. Consorti’s observations come amid a rare dislocation from the M2 trend, which historically aligns with Bitcoin prices.

He attributes past divergences, such as during the 2022 FTX collapse, to market-specific events. In hindsight, on September 30, Consorti predicted Bitcoin could hit $90,000 by year-end if it continued mirroring M2 trends. That forecast played out accurately during BTC’s recent rally, bolstering his credibility.

Another proponent of this correlation, user Joseph Scioscia, reiterated that Bitcoin acts as a reliable proxy for M2 money supply trends. He advised investors to adopt a long-term dollar-cost-averaging (DCA) strategy, citing BTC’s historical resilience.

“Bitcoin is the best proxy for M2 money supply. The trend in M2 reveals the potential direction in BTC, especially with Bitcoin’s approximate 70-day lag behind M2. DCA in Bitcoin and adopt a long-term strategy,” Scioscia stated.

However, skepticism remains. An X user known as Spicez criticized the focus on short-term data. They argue that a broader five-year chart would offer more insight into Bitcoin’s behavior during election cycles and post-halving periods.

“It would be nice to see this chart for the last 5 years. It would give us an indication of BTC’s behavior towards M2 during the election cycle and how it behaved after the last halving. This 2-year chart doesn’t tell us much at all,” Spicez challenged.

Crucial Link Between M2 Money Supply and BTC

The global M2 supply measures the total liquidity in the economy, including checking accounts, savings accounts, and other liquid assets that can be quickly converted into cash. It has been a key driver for Bitcoin’s price movements.

Risk assets, including Bitcoin, typically correlate with rising liquidity. The relationship between Bitcoin’s price and M2 expansion reflects broader market sentiment and economic conditions.

A higher M2 expansion indicates a loose monetary policy and an increased money supply, which often boosts risk assets like cryptocurrencies. Historically, increases in M2 correspond with bullish trends for Bitcoin as liquidity flows into risk assets. Conversely, declines often signal impending corrections.

In a recent analysis, BeInCrypto echoed this link, suggesting that global liquidity could help Bitcoin reach $100,000. As reported, factors like the 2024 Bitcoin halving and broader macroeconomic recoveries often act as tailwinds for BTC’s price.

The rising interest in Bitcoin ETFs (exchange-traded funds), particularly from institutions like BlackRock, could counteract M2-related pressures. Structural buying from ETFs, coupled with corporate acquisitions, may provide a cushion against liquidity-driven sell-offs.

“It [Bitcoin] could buck this 2-month bout of M2 deflation thanks to structural ETF inflows + corporate buying pressure,” Consorti added.

While Bitcoin’s price faces potential headwinds from shrinking global liquidity, the market remains divided on its next move. Structural inflows and long-term adoption strategies may temper any downside. However, traders should brace for volatility as macroeconomic factors play out this week.

At the time of writing, Bitcoin is trading at $94,395. BeInCrypto data shows it has been down 3.37% since the Tuesday session opened.

Crypto investment inflows registered a record-breaking weekly inflow of $3.12 billion last week. This surge brings the year-to-date inflows to an unprecedented $37 billion, highlighting Bitcoin’s growing dominance and renewed interest in digital asset investment products.

It comes as Bitcoin (BTC) continues to show potential for new record highs, with the peak price now standing at $99,588 on Binance.

Bitcoin Dominates Amid Crypto Inflows’ Record Highs

Bitcoin led the pack with $3.078 billion in inflows last week, marking its strongest performance to date. Despite reaching all-time price highs, the surge in interest extended to short-Bitcoin investment products, which recorded $10 million in weekly inflows. Notably, these short-Bitcoin inflows reached $58 million for the month — the highest since August 2022.

The recent $3.12 billion inflow is a sharp increase from previous weeks, continuing a strong upward trend. For context, the week prior saw $2.2 billion in inflows, buoyed by Republican electoral momentum and Federal Reserve dovishness.

The week before that brought $1.98 billion in post-election momentum. These successive inflows highlight the market’s resilience and growing confidence among investors despite broader economic uncertainties.

However, the growing adoption of Bitcoin ETFs (exchange-traded funds), which are attracting significant institutional interest, is driving Bitcoin’s rise. According to data on SoSoValue, the cumulative total net inflow for Bitcoin ETFs reached $30.84 billion as of November 22, when markets closed on Friday.

While all eyes were on MSTR, ETFs quietly ingested more than 10x the amount of BTC mined last week. Pac-Man mode activated,” quipped Eric Balchunas, an ETF analyst with Bloomberg Intelligence.

Amid the growing optimism, Balchunas recently noted that US spot ETFs are 98% to passing Satoshi as the world’s biggest BTC holder. Similarly, analysts predict Bitcoin’s upward trajectory could extend to $115,000 this holiday season. Whale activity and long-term holders capitalizing on the current rally bolster the enthusiasm.

MicroStrategy’s Michael Saylor, a vocal Bitcoin advocate, hinted at expanding the company’s Bitcoin holdings, further solidifying institutional confidence in the asset.

Solana (SOL) emerged as a strong contender among altcoins, recording $16 million in inflows last week. This significantly outpaced Ethereum’s $2.8 million. However, on a year-to-date basis, Solana still trails Ethereum, which remains the dominant altcoin with substantially higher total inflows.

Solana’s recent success can be attributed to increasing optimism surrounding Solana-based ETFs. With multiple filings from VanEck, 21Shares, and Bitwise, among others, investor confidence in Solana’s ecosystem has surged.

These ETFs are expected to broaden access to Solana’s technology for retail and institutional investors alike, pending SEC (Securities and Exchange Commission) approvals.

As Bitcoin and broader crypto markets continue their ascent, optimism remains tempered with caution. Market watchers like CryptoQuant caution against over-exuberance, warning of a possible price correction after Bitcoin’s recent climb. Other skeptics, including Justin Bons of Cyber Capital, raised concerns over the cryptocurrency’s vulnerability to liquidity risks.

On the one hand, analysts predict sustained growth driven by ETFs, institutional adoption, and strong market sentiment. On the other hand, warnings of over-leveraged positions and liquidity risks suggest that a pullback could follow this bullish phase. How long this momentum will persist depends on regulatory developments, market sentiment, and macroeconomic factors.

This week, three US economic events will be on crypto traders’ and investors’ watchlists. The interest comes amid the continued influence of US macroeconomic data on Bitcoin (BTC) and crypto prices in 2024, after drying up last year.

Meanwhile, Bitcoin remains just shy of the $100,000 psychological level, hovering above $98,000 after retracting to the $95,000 range over the weekend.

Minutes of Fed’s November FOMC Meeting

All eyes will be on the Federal Reserve (Fed) on Tuesday, November 26, for the minutes of the November 6 FOMC (Federal Open Market Committee) meeting. Traders and investors will be watching to see if the FOMC minutes shed some more light on how the policymakers assessed the economy leading up to the November meeting.

The minutes may also show at least some discussion about possible economic implications following the US election outcome. They will come after policymakers voted to cut interest rates by 25 basis points (bps), following an initial 50 bps reduction in September. Investors will be looking for any clues on whether the pace of rate cuts could drop from here.

Meanwhile, data continues to suggest the US economy is holding up well. Still, fears abound that President-elect Donald Trump’s proposed policies may be inflationary, potentially reducing the need for lower rates.

“Experts say Donald Trump’s election victory could shift interest rate policy in the US as his promised policies risk higher inflation…Tradition tells us that that increase in tariffs will increase inflation in the US,” The Canadian Press reported, citing Sheila Block, an economist with the Canadian Centre for Policy Alternatives.

One way the FOMC minutes could affect Bitcoin and crypto is through their impact on the overall market sentiment. Any dovish or hawkish tones in the minutes can influence market expectations and lead to changes in investor behavior.

Initial Jobless Claims

Another key US economic event this week is the release of initial jobless claims on Wednesday, November 27. Labor market weakness was a concern through the summer and fall, with rising jobless claims, an increased unemployment rate, and slower monthly job gains. This data influenced the Federal Reserve’s decision to cut interest rates by half a percentage point in September.

However, since then, labor market data has come in better than expected, with the unemployment rate falling from a peak of 4.3% to 4.1%. The previous initial jobless claims data came in at 213,000 for the week ending November 16, below the estimate of 220,000, which was a good sign.

“US initial jobless claims fell by 6,000 to 213,000 last week, the lowest since April. The labor market is strong,” the publisher of the Lead-Lag Report noted.

Weekly unemployment claims have been steadily decreasing after reaching a peak in over a year this past October. While initial jobless claims are falling, the rise in continuing claims indicates that employers are striving to retain workers. However, those who lose their jobs are facing challenges in securing new employment.

“Initial jobless claims remain very slow but continuing claims hit a three-year high. This reinforces that employers aren’t actively laying workers off, but they aren’t hiring, either,” Sevens Report commented.

For now, things appear to be okay on the labor side of the Federal Reserve’s dual mandate. If the trend continues, it would suggest that economic hardship is reversing and that the labor market is gaining strength. This could lead to increased consumer spending and investment in traditional assets like Bitcoin and crypto.

US PCE Inflation

Crypto market participants will also watch Wednesday’s October US PCE (Personal Consumption Expenditures) inflation data, as this is the Fed’s preferred gauge. The November PCE index on Wednesday is also a good watch. The data will show whether inflation continued to slow in November. 

“Expectations: Monthly PCE expected to rise by 0.2% Annual PCE expected at 2.3% Core PCE monthly increase at 0.3% Core PCE annual increase at 2.8%,” data on MarketWatch shows.

Rising PCE figures often raise concerns about higher inflation levels in the economy. If PCE inflation exceeds expectations, it could weaken the US dollar as investors anticipate potential monetary policy actions, such as interest rate hikes. A weaker dollar tends to benefit Bitcoin and other cryptocurrencies, which often show an inverse correlation with the USD.

In such scenarios, investors may turn to alternative assets like Bitcoin as a hedge against inflation. Cryptocurrencies are frequently seen as a store of value, similar to gold, during periods of inflationary pressure.

Currently, the Federal Reserve remains optimistic that inflation is nearing its 2% target. Policymakers have maintained interest rates at historically high levels to combat the inflation surges of the past two years. In this context, traders and investors are closely monitoring price data for positive signs that could prompt the Fed to begin easing interest rates.