The cryptocurrency market is experiencing a boost in sentiment due to record M2 money supply levels, which has reached $21.5 trillion in December 2024, just shy of its all-time high.
The M2 money supply reached $21.5 trillion in December 2024, just shy of its all-time high of $22 trillion.
The M2 money supply is a measure of the money circulating in an economy, including cash, checking and savings accounts, and money market funds.
It represents the total amount of liquid assets available for spending or investment.
The M2 money supply is calculated by adding M1 (cash and checking accounts) to near-money assets like 'savings deposits' , 'time deposits under $100,000' , and 'money market funds' .
Central banks use M2 to monitor inflation risks and control monetary policy.
A high M2 growth rate can indicate economic expansion or potential inflationary pressures.
An increase in the M2 money supply is a ‘bullish catalyst for risk assets’ . This indicator suggests that more liquidity is entering the system, which typically finds itself in risk-assets first.
The M2 money supply measures the total amount of money in circulation within an economy, including both liquid and less liquid assets. Meanwhile, the CPI index tracks the average price change of goods and services over time, indicating inflation. Despite the Federal Reserve‘s efforts to tighten monetary policy through quantitative easing and keeping the Fed funds rate elevated, the M2 money supply continues to grow.
The M2 money supply has clocked in a new monthly high every month since January 2024. This sustained growth is a significant indicator of the increasing liquidity in the system.
While the Federal Reserve aims to bring CPI back down to its 2% inflation target, the M2 money supply continues to grow. The influence of the M2 money supply on CPI is evident in its impact on inflation trends. As the M2 money supply increases, it can lead to higher inflation rates.
James Van Straten, a Senior Analyst at CoinDesk, notes that an increase in the M2 money supply is a ‘bullish signal for risk assets’ . With his expertise in Bitcoin and its interplay with the macroeconomic environment, he emphasizes the significance of this indicator for investors.
