Raoul Pal, the founder of Global Macro Investor, has drawn attention with a widely circulating chart comparing the performance of Bitcoin to the global money supply M2.
According to the chart, since the beginning of 2023, Bitcoin has been trending along with the global M2 money supply with a lag of about 12 weeks, indicating that changes in liquidity typically take about three months to reflect in the cryptocurrency market. Based on this model, the price of Bitcoin still has the potential to reach the milestone of 200,000 USD by the end of 2025 if this correlation continues to be maintained.
However, since July 16, this relationship has been disrupted. While global M2 continues to increase due to monetary easing, Bitcoin has stagnated and remained flat throughout the summer, despite its historically strong connection to liquidity.
Raoul Pal## The role of TGA in “bloodletting” liquidity
Pal believes that this phase shift is not due to a failed model, but rather a result of the actions of the U.S. Department of the Treasury with the Treasury General Account – TGA. This is the government's operating account at the Federal Reserve, where it receives revenue from taxes, issues bonds, and spends the budget.
When the Ministry of Finance issues more bonds than necessary to meet immediate obligations to replenish the TGA, system liquidity will be drawn down, reducing the amount of capital available for risk assets. Pal estimates that since July, the Ministry of Finance has issued about 500 billion USD in bonds to bring the TGA balance to nearly 800 billion USD – the highest level in many years.
This large-scale withdrawal has most strongly affected liquidity-sensitive assets such as cryptocurrencies, explaining why Bitcoin has remained flat despite global M2 growth.
Recovery Prospects
According to Pal, TGA is now sufficiently supplemented, meaning that the pressure to withdraw liquidity will soon end and may completely disappear by the end of this month. At that point, liquidity conditions will return to normal, paving the way for the next upward trend of Bitcoin according to the model associated with M2.
However, it is important to note that technology stocks and gold continue to reach new highs during the same period. This indicates that the risk appetite in the broader market remains strong. Additionally, Bitcoin's heavier impact may reflect selling pressure from long-term holders, contributing to a divergence with global M2.
Thạch Sanh
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