Raoul Pal on Bitcoin’s Correlation with M2 Money Supply

Raoul Pal, the founder of Global Macro Investor, has pointed out a widely circulated chart in the market illustrating that Bitcoin (BTC) has been moving in sync with the global M2 money supply for a considerable time.

The chart in question shows that Bitcoin follows changes in M2 with a lag of around 12 weeks and suggests that if this pattern holds, BTC could potentially hit $200,000 by the end of 2025.

Disruption of the Correlation

However, Pal contends that this correlation began to break down starting July 16th. While the global M2 supply continued its expansion, Bitcoin remained relatively stagnant throughout the summer. According to Pal, this stagnation isn’t due to the model becoming outdated, but rather a result of the liquidity tightening measures enacted by the US Treasury Department via the Treasury General Account (TGA).

The TGA is the primary operating account of the US government at the Federal Reserve, where tax revenues, bond sales, and other cash inflows are collected and utilized to fund federal expenditures. Pal observed that the Treasury has bolstered the TGA by issuing roughly $500 billion in bonds since July, thereby raising the balance to a multi-year high of around $800 billion. This liquidity drain has had a significant impact on cryptocurrencies, making them the most affected among risk assets.

Pal anticipates that the TGA has now gained enough strength that the liquidity drawdown will be entirely resolved by the end of the month. He argues that Bitcoin may be able to re-enter its M2-driven upward trajectory once market conditions stabilize.

*This is not investment advice!