Macro Mechanics #5: Global M2 & The Liquidity Lag
Pierce & Pierce Research | January 2026
Part of the Macro Mechanics Series
⏱️ 14-16 minutes • Beginner-friendly • No prior Fed knowledge required
Connection to Previous Briefs: The first four briefs covered US Fed mechanics - the TGA, ON RRP, reserves, and balance sheet cycles. But Bitcoin doesn’t trade against US liquidity alone. It trades against global liquidity. Global M2 captures the money supply across all major economies, and it’s the broadest measure of the liquidity environment that crypto prices respond to.
Why This Matters
Bitcoin hit an all-time high of $109,000 in January 2025. By late 2025, it had pulled back significantly. Many crypto investors who bought into the “liquidity narrative” felt betrayed. If global money supply was expanding, why was Bitcoin not making new highs every week?
The answer lies in understanding two things: what global M2 actually measures, and why Bitcoin’s response to liquidity changes is delayed by months, not days.
Key Insight:
| Factor | Value |
|---|---|
| Bitcoin-M2 correlation (long-term)* | 0.60-0.90 |
| Typical lag | 70-107 days |
| Commonly cited midpoint | 90 days (~10 weeks) |
*Long-term correlation based on Lyn Alden research and academic studies analyzing BTC-M2 relationship 2013-2024. Correlation varies by market regime.
The correlation is real. But the relationship is not instantaneous. Money supply changes take time to filter through the financial system before reaching risk assets like cryptocurrency.
Section 1: What Is M2 Money Supply?
M2 is a measure of the money supply that includes cash, checking deposits, savings deposits, money market securities, and other near-money assets.
What’s Included in M2:
| Component | Example |
|---|---|
| Cash | Physical currency |
| Checking deposits | Your checking account |
| Savings deposits | Your savings account |
| Money market funds | Retail MMF balances |
| Small time deposits | CDs under $100,000 |
Why M2 Matters for Markets:
| M2 Direction | Effect on Markets |
|---|---|
| 🟢 M2 growing | More money exists to chase assets |
| 🔴 M2 contracting | Less capital available to allocate |
When M2 grows, it doesn’t mean every new dollar flows into Bitcoin. But it expands the pool of potential capital that could.
US M2 vs Global M2:
| Measure | Current Level | What It Captures |
|---|---|---|
| US M2 | ~$22.32 trillion | US banking system only |
| Global M2 | ~$108 trillion | All major economies |
Why Global M2 Provides a Better Signal:
Bitcoin is a global asset traded on exchanges in every major market. The relevant liquidity measure should capture global conditions, not just American ones.
| Factor | Why It Matters |
|---|---|
| Global trading | Buyers come from every country |
| 24/7 markets | Not just US trading hours |
| Research shows | Stronger correlation with global M2 than US M2 alone |
Section 2: The Correlation Is Real
The relationship between global M2 and Bitcoin price is not a myth. It is empirically observable across multiple market cycles.
Historical Evidence:
| Period | M2 Direction | Bitcoin Performance | Correlation |
|---|---|---|---|
| 2020-2021 | 🟢 Expanding rapidly | $9K → $69K | Strong positive |
| 2022 | 🔴 Contracting | $69K → $16K | Strong negative |
| 2023-2024 | 🟢 Resuming growth | $16K → $100K+ | Strong positive |
Correlation Metrics:
| Time Period | Estimated Correlation | Source |
|---|---|---|
| Long-term (2013-2024) | ~0.94 | Lyn Alden research |
| Bull market phases | 0.60-0.90 | Various academic studies |
| Bear market phases | 0.20-0.50 | Weaker during deleveraging |
| Post-ETF (2024+) | ~0.65 | Early observations |
Important Notes:
| Factor | Clarification |
|---|---|
| Correlation measures direction | Not timing |
| Not constant | Weakens during crypto-specific events |
| Higher in bull markets | Weaker during deleveraging |
Section 3: Why Does the Lag Exist?
This is the crucial insight that separates informed liquidity watchers from frustrated chart-watchers wondering why Bitcoin isn’t moving with M2 in real time.
The Lag:
| Metric | Value |
|---|---|
| Typical range | 70-107 days |
| Common midpoint | 90 days (~10 weeks) |
| Can be shorter | 60-70 days (strong crypto sentiment) |
| Can be longer | 100-120 days (macro uncertainty) |
The Transmission Chain:
| Step | Timeframe | What Happens |
|---|---|---|
| 1 | Week 0 | Central bank action (Fed purchases, rate cut) |
| 2 | Weeks 0-2 | Bank reserves increase |
| 3 | Weeks 2-8 | Banks decide what to do with reserves |
| 4 | Weeks 4-12 | Credit creation, capital market deployment |
| 5 | Weeks 8-16 | Risk appetite builds, flows to riskier assets |
| 6 | Weeks 10-16+ | Crypto allocation (end of risk spectrum) |
Why Crypto Is Last:
| Asset Class | Risk Spectrum Position | Typical Allocation Order |
|---|---|---|
| Government bonds | Low risk | First |
| Investment grade credit | Moderate risk | Early |
| Equities | Higher risk | Middle |
| High yield / EM | High risk | Later |
| Crypto | Highest risk | Last |
The Lag Works in Reverse Too:
When M2 contracts, Bitcoin doesn’t fall immediately. Current price action reflects M2 conditions from roughly three months ago, not today.
This creates situations where:
- Bitcoin rises even as M2 peaks (reacting to prior expansion)
- Bitcoin falls even as M2 troughs (reacting to prior contraction)
Section 4: Current Global M2 Conditions
US M2 Status:
| Date | Level | YoY Change | Status |
|---|---|---|---|
| Dec 2023 | $20.9T | - | - |
| Jun 2024 | $21.0T | +0.5% | 🟡 Slow growth |
| Oct 2025 | $22.3T | +4.0% | 🟢 Moderate growth |
Global M2 Status:
| Metric | Value | Status |
|---|---|---|
| Total | ~$108 trillion | 🟢 All-time high (nominal) |
| YoY growth | +3-4% | 🟢 Expanding |
Central Bank Stance by Region:
| Central Bank | Current Policy | Direction | Status |
|---|---|---|---|
| Federal Reserve | Rate cuts + T-bill purchases | Easing | 🟢 |
| ECB | Rate cuts ongoing | Easing | 🟢 |
| Bank of Japan | Gradual normalization | Neutral | 🟡 |
| PBOC | Active stimulus | Easing | 🟢 |
| Bank of England | Rate cuts beginning | Easing | 🟢 |
Overall Assessment:
| Factor | Status |
|---|---|
| Majority of central banks | 🟢 Easing mode |
| Global M2 direction | 🟢 Expanding |
| Growth rate | 🟡 Moderate (not explosive) |
The 90-Day Forward Look:
If the historical lag holds:
- Late 2025 Bitcoin price reflects late summer/early fall 2025 M2 conditions
- Early 2026 Bitcoin will reflect late 2025 M2 conditions
- Current supportive M2 conditions would translate to Q1 2026
Section 5: Historical Precedents
2020-2021: The Liquidity Surge
| Date | Global M2 Direction | Bitcoin Price |
|---|---|---|
| Feb 2020 | Beginning of surge | ~$9,000 |
| Dec 2020 | Rapid expansion | ~$29,000 |
| Nov 2021 | Peak M2 growth rate | $69,000 |
US M2 alone grew from $15.4 trillion to over $21 trillion. Bitcoin’s steepest moves came several months after M2 growth peaked.
2022: The Contraction
| Date | M2 Direction | Bitcoin Price |
|---|---|---|
| Jan 2022 | Growth decelerating | ~$47,000 |
| Jun 2022 | QT begins, M2 contracting | ~$20,000 |
| Nov 2022 | Continued contraction | ~$16,000 |
The M2 contraction extended and deepened the bear market. Bitcoin bottomed several months after the steepest M2 declines.
2023-2024: The Recovery
| Date | M2 Direction | Bitcoin Price |
|---|---|---|
| Late 2022 | M2 bottoming | ~$16,000 |
| Early 2023 | M2 turns positive | ~$23,000 |
| Late 2024 | M2 accelerating | ~$100,000+ |
M2 bottomed and turned positive before Bitcoin bottomed. Bitcoin’s subsequent rise lagged the M2 inflection by roughly 3 months.
Pattern Recognition:
| M2 Condition | Bitcoin Response (Lagged 90d) |
|---|---|
| 🟢 M2 accelerating | Bitcoin rallies |
| 🟡 M2 decelerating | Bitcoin consolidates or corrects |
| 🔴 M2 contracting | Bitcoin bear market |
| 🟢 M2 inflecting higher | Bitcoin bottoms 2-3 months later |
Section 6: Why Divergences Happen
Even with a robust correlation, Bitcoin and M2 can diverge for extended periods.
Crypto-Specific Factors:
| Factor | Example | Impact |
|---|---|---|
| Exchange collapses | FTX (Nov 2022) | 🔴 Crashed prices despite stable M2 |
| Regulatory actions | SEC lawsuits | 🔴 Can override liquidity |
| Halving cycles | April 2024 | 🟢 Supply shock interaction |
| ETF flows | Since Jan 2024 | 🟢/🔴 New demand channel |
Leverage and Positioning:
| Factor | Effect |
|---|---|
| Overleveraged longs unwind | 🔴 Prices fall regardless of M2 |
| Excessive shorting | 🟢 Squeeze can push prices up faster than M2 predicts |
The Velocity Problem:
| Issue | Explanation |
|---|---|
| M2 measures stock, not velocity | Money can exist without being deployed |
| Velocity definition | How quickly money changes hands—M2 can grow while velocity falls if people hold cash rather than spend or invest it |
| Uncertainty periods | Investors may hold cash rather than invest |
| Result | M2 can grow while risk appetite remains subdued |
Current Divergence Context (Late 2025):
Bitcoin pulled back from its all-time high despite M2 remaining at elevated levels. This likely reflects:
| Factor | Status |
|---|---|
| The lag | Bitcoin reacting to M2 from months earlier |
| Leverage washout | October liquidations |
| Profit-taking | After strong 2024 rally |
| Macro uncertainty | Despite constructive liquidity |
Historical Pattern:
These divergences typically resolve in the direction of M2. If liquidity remains supportive, Bitcoin tends to catch up. But timing is unpredictable.
Section 7: Thesis Connection
Global M2 provides the broadest measure of the liquidity conditions we have examined throughout this series.
How the Pieces Connect:
| Brief | Factor | How It Feeds M2 |
|---|---|---|
| #1 | TGA drawdowns | Add liquidity to US banking system |
| #2 | ON RRP exhaustion | Removes buffer, direct transmission |
| #3 | Bank reserves at floor | Fed must actively manage |
| #4 | Fed T-bill purchases | Directly adds to M2 |
| #5 | Central banks easing globally | Adds to respective M2 measures |
The Current Setup:
| Factor | Status | Supports M2 Growth? |
|---|---|---|
| Fed T-bill purchases | $40B/month | 🟢 Yes |
| TGA drawdown | Ongoing spending | 🟢 Yes |
| ECB rate cuts | Easing credit conditions | 🟢 Yes |
| PBOC stimulus | Active expansion | 🟢 Yes |
| Reserve management | Preventing liquidity stress | 🟢 Yes |
If the historical 90-day lag holds, constructive M2 conditions in Q4 2025 should support Bitcoin in Q1-Q2 2026.
⚠️ Transmission Caveats:
| Factor | Why It Can Break Correlation |
|---|---|
| Velocity | Money must actually be deployed, not hoarded |
| Risk appetite | Investors must be willing to allocate to crypto |
| Crypto-specific factors | Regulation, hacks, contagion events |
| Dollar strength | Can offset M2 expansion effects |
What Would Invalidate the Thesis:
| Risk | Likelihood | Status |
|---|---|---|
| M2 growth turns negative | Low | 🟢 Not happening |
| Major crypto crisis | Low | 🟢 Not imminent |
| Global recession | Medium | 🟡 Monitor |
| Sustained dollar strength | Medium | 🟡 Monitor |
Section 8: What To Watch
Primary Data Sources:
| Source | What It Shows | Frequency | Access |
|---|---|---|---|
| FRED: M2SL | US M2 | Weekly/Monthly | Free |
| BGeometrics | Global M2 (21 central banks) | Varies | Free/Subscription |
| Bitcoin Magazine Pro | Global liquidity vs BTC | Real-time | Subscription |
| TradingView | User-created global M2 indicators | Real-time | Free/Freemium |
M2 Growth Rate Interpretation:
| YoY Growth | Status | Historical BTC Response |
|---|---|---|
| >10% | 🟢 Strong expansion | Bull market conditions |
| 5-10% | 🟢 Moderate expansion | Supportive, positive drift |
| 0-5% | 🟡 Slow growth | Neutral, consolidation |
| <0% | 🔴 Contraction | Bearish, expect weakness |
The Lag Adjustment:
When comparing M2 to Bitcoin, shift the M2 data forward by 70-90 days. This reveals the underlying correlation more clearly.
Individual Central Bank Data:
| Central Bank | Data Source |
|---|---|
| Fed (US) | FRED M2SL |
| ECB (Eurozone) | ECB Statistical Data Warehouse |
| BOJ (Japan) | BOJ Statistics |
| PBOC (China) | PBOC website |
| BOE (UK) | Bank of England Database |
Your Global M2 Dashboard
Key Metrics to Track Monthly:
| Metric | Source | Current | Status |
|---|---|---|---|
| US M2 | FRED: M2SL | $22.32T | 🟢 |
| US M2 YoY Change | Calculate | +4.3% | 🟢 |
| Global M2 (est) | BGeometrics | ~$108T | 🟢 |
| Fed stance | FOMC | Easing | 🟢 |
| ECB stance | ECB | Cutting | 🟢 |
The Growth Rate Formula:
M2 YoY Growth = (Current M2 - M2 12 months ago) / M2 12 months ago
| Growth Rate | Status | Implication |
|---|---|---|
| >5% | 🟢 | Supportive |
| >10% | 🟢 | Bullish |
| <0% | 🔴 | Bearish |
Current Assessment (December 2025):
| Factor | Value | Status |
|---|---|---|
| US M2 YoY | +4.0% | 🟢 Moderate growth |
| Global M2 | ~$108T | 🟢 All-time high |
| Central bank stance | Majority easing | 🟢 Supportive |
| 90-day lag implication | Q1 2026 should see effect | 🟢 |
Interpretation: M2 is growing modestly but positively. If the historical lag holds, current supportive conditions would translate to Bitcoin in Q1 2026. Growth is not explosive (below 10%) so expectations should be calibrated accordingly. This is a supportive backdrop, not a moonshot setup.
Quick Reference
| Item | Detail |
|---|---|
| The Mechanic | M2 is broad money supply (cash + deposits + near-money). Global M2 aggregates all major economies. Bitcoin correlates with M2 over time but with a lag. |
| The Lag | 70-107 days typical (90 days common midpoint). Money supply changes take time to flow through banks, credit markets, and finally into risk assets. |
| The Correlation | Historically 0.60-0.90 depending on period. Stronger during bull markets. Weaker during crypto-specific crises. |
| Current US M2 | $22.3 trillion (October 2025), +4% YoY |
| Current Global M2 | ~$108 trillion (estimated), near all-time highs |
| Why Divergences Happen | Leverage washouts, crypto-specific events, velocity changes, dollar strength. Usually resolve in direction of M2. |
| Transmission Caveats | M2 growth is necessary but not sufficient. Risk appetite, velocity, and crypto-specific factors all matter. |
| Monitor | FRED M2SL (US), global M2 composites (BGeometrics), central bank policy announcements |
Series Conclusion
This concludes the Macro Mechanics series. You now have the foundational knowledge to understand Fed balance sheet dynamics and their transmission to crypto markets.
The Complete Picture:
| Brief | Topic | Key Insight |
|---|---|---|
| #1 | TGA | Government spending/borrowing creates liquidity swings |
| #2 | ON RRP | The $2.4T buffer that absorbed shocks is gone |
| #3 | Bank Reserves | The liquidity that matters; Fed pivoted in Oct 2025 |
| #4 | QT → QE | 42-month headwind became tailwind Dec 2025 |
| #5 | Global M2 | Bitcoin correlates with 70-90 day lag |
The Current Setup (December 2025):
| Factor | Status |
|---|---|
| Fed injecting via T-bill purchases | 🟢 ~$40B/month |
| TGA drawing down | 🟢 ~$40-80B/month |
| No ON RRP buffer | 🔴 Direct transmission |
| Reserves stabilizing | 🟢 Fed managing actively |
| Global M2 growing | 🟢 +3-4% YoY |
| Multiple central banks easing | 🟢 ECB, BOC, PBOC |
Expectations:
Patient accumulation, not immediate moon. The lag means improvements in liquidity conditions take months to fully manifest in crypto prices. Volatility will continue. Divergences will occur. But the structural backdrop supports Bitcoin over the medium term if current conditions persist.
Synthesis of Transmission Caveats:
Throughout this series, we’ve emphasized that liquidity is necessary but not sufficient. Here’s the complete framework for why reserves don’t mechanically equal price appreciation:
| Category | Factors |
|---|---|
| Bank behaviour | Reserves may be hoarded for regulatory compliance (LCR, NSFR) rather than deployed |
| Credit transmission | Reserves must become loans, which requires credit demand |
| Capital market transmission | Investors must have risk appetite to allocate to crypto |
| Velocity | Money must be deployed, not held as precautionary cash |
| Crypto-specific | Regulation, hacks, exchange failures, leverage washouts can override liquidity |
| Dollar dynamics | Strong dollar can offset M2 expansion effects |
| Timing | The relationship is directional over quarters, not mechanical over days |
Final Caveat:
Liquidity is one input among many. Regulation, adoption, market structure, macro shocks, and investor sentiment all matter. Understanding liquidity mechanics gives you an edge, but not certainty.
Use this framework to contextualize price action, avoid panic selling during temporary divergences, and set realistic expectations for how liquidity tailwinds actually work.
Sources:
Federal Reserve Economic Data (FRED) | European Central Bank Statistical Data Warehouse | Bank of Japan Statistics | People’s Bank of China | Bank of England Database | BGeometrics Global M2 Data | Bitcoin Magazine Pro Analytics | Lyn Alden Investment Strategy | Academic Papers on Bitcoin-M2 Correlation
Methodology Note:
US M2 data from FRED series M2SL through October 2025. Global M2 estimates from aggregated central bank data via BGeometrics and similar services. Correlation analysis based on published research (Lyn Alden, academic studies) and historical price data. The 90-day lag is empirically derived but approximate—it can vary by 20-30 days depending on market conditions. All figures represent publicly available data from official or reputable analytical sources.
This publication is for educational purposes only. Not financial advice. Cryptocurrency investments carry substantial risk of complete loss.
Pierce & Pierce Research
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