Remember How Bitcoin Was Supposed to Rise With Money Supply? Here's Why That Didn't Happen

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Cryptocurrency analyst Benjamin Cowen on Wednesday argued that unlike commonly assumed, Bitcoin does not rise with M2 money supply, which explains weakness against equities.

Global Net Liquidity Explains Bitcoin's Five-Year Lag

Cowen detailed on his podcast how rising M2 does not guarantee Bitcoin rallying.

M2 measures cash and readily available deposits across the financial system. It reached record highs in 2014, 2018 and 2022, yet Bitcoin still suffered major declines during those years.

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The metric Cowen tracks instead is global net liquidity, which combines the balance sheets of major central banks including the Federal Reserve, ECB, and the central banks of Japan, China, and the UK, then subtracts money parked in the Fed's reverse repo facility and the U.S. Treasury General Account. 

That number currently sits around $25 trillion, well below the $30 trillion peak in 2021 and 2022, leaving a $5 trillion gap that Cowen argued fully explains why Bitcoin has lagged equities despite M2 continuing to climb.

Why Cowen Sees 2019 as the Closest Market Parallel

Cowen drew a direct parallel to 2019, when M2 rose, stocks hit all-time highs, and Bitcoin still dropped because global net liquidity was not expanding.