Lawrence Lepard Explains Bitcoin’s M2 Disconnect: ‘It’s A Liquidity Smoke Alarm’

Veteran investor Lawrence Lepard expects the Fed to be forced into another round of money printing, which he says could happen in 16-18 months.

• Lawrence Lepard called Bitcoin a "liquidity smoke alarm,” which is more sensitive to short-term liquidity than long-term debasement.
• He compared it against gold, which he said was his "pure debasement insurance."
• He said Bitcoin has stayed weak despite growing M2 because system-wide liquidity is currently tight.

Veteran investor and author Lawrence Lepard described Bitcoin (BTC) as a “liquidity smoke alarm” that’s more sensitive to short-term liquidity conditions than long-term currency debasement, as opposed to gold, which he described as “pure debasement insurance.”

Lepard said on the Honest Money podcast on Friday, responding to a question about why Bitcoin's price has recently decoupled from M2 money-supply growth. M2 is a broad measure of money circulating in the economy, including cash, checking and savings deposits, and money-market funds, whose growth rate traders have long used as a debasement-trade signal for Bitcoin. The theory is that more dollars in the system should mean more demand for risk assets like cryptocurrency.

Leopard said this divergence came down to how each asset was actually used. "Bitcoin to me is a little bit of a liquidity smoke alarm," he said. "It has a little bit of a tech component to it, a little bit of a shiny object component to it." Gold buyers, he said, "tend to take a long-term view.” Bitcoin hasn't been treated the same way yet, he added, "because of the volatility."