Bitcoin experienced a 15% correction during the third week of December, marking its largest weekly price drop since August. Analysts link this decline to global macroeconomic factors, suggesting further downside if these pressures persist. However, Bitcoin’s internal dynamics may help mitigate these external challenges.
Declining Global Liquidity and Its Impact on Bitcoin
Recent data from The Kobeissi Letter reveals a 10-week lagged correlation between Bitcoin’s price and Global Money Supply (M2). Over the past two months, Global M2 has plummeted by $4.1 trillion, signaling potential continued Bitcoin price declines if this trend persists.
"As global money supply hit a record $108.5 trillion in October, Bitcoin reached an all-time high of $108,000. However, with M2 dropping to $104.4 trillion—the lowest since August—Bitcoin could fall by $20,000 in coming weeks."
Key Factors Influencing Bitcoin’s Trajectory
Macroeconomic Headwinds:
- Tightening liquidity in the U.S. and globally.
- Historical correlation between M2 contraction and crypto market downturns.
Bitcoin’s Internal Counterbalance:
- Growing illiquid supply (BTC held long-term) reduces market availability, potentially offsetting macro pressures.
- Analysts like André Dragosch (Bitwise) highlight this supply-demand dynamic as a bullish counterweight.
"Bitcoin’s bullish on-chain factors (e.g., supply deficit) may eventually outweigh macro risks, though volatility in early 2025 could present buying opportunities."
👉 Why Bitcoin’s scarcity could shield it from further drops
Current Market Snapshot
- Bitcoin Price: ~$94,000 (down 6% over the weekend).
Key Indicators to Watch:
- Global M2 trends.
- BTC illiquid supply rates.
FAQ Section
Q: How does Global M2 affect Bitcoin’s price?
A: M2 measures worldwide money supply. Declines often correlate with reduced liquidity in risk assets like Bitcoin, historically leading to price drops.
Q: What is Bitcoin’s illiquid supply, and why does it matter?
A: Illiquid supply refers to BTC held in wallets with minimal selling activity. Higher illiquidity suggests scarcity, which can support prices despite macro pressures.
Q: Should investors expect more volatility in 2025?
A: Yes. Analysts anticipate fluctuations due to conflicting macro and on-chain factors, but long-term fundamentals remain strong.
👉 How to navigate crypto market volatility
Final Thoughts
While macroeconomic uncertainty poses risks, Bitcoin’s scarcity-driven model and adaptive market mechanisms may cushion extreme downturns. Investors should monitor both global liquidity trends and on-chain metrics to make informed decisions.
Note: Always conduct independent research and consult financial advisors before trading.