Bitcoin (BTC) price bull market requires M2 money supply growth in addition to halving

The beleaguered crypto market is awaiting the Bitcoin (BTC) blockchain’s fourth mining reward halving, due in April 2024, in hopes that it will start a significant uptrend, thereby living up to its earlier reputation as a key bullish catalyst.

However, traders should note that previous halvings have not necessarily single-handedly started an uptrend. According to data collected by MacroMicro, Macro may also have played an important role, most notably in the form of ample fiat liquidity conditions.

The reward halving refers to code already programmed that reduces the pace of Bitcoin’s supply expansion by 50% every four years. The next halving will reduce the reward per block paid to miners from 6.25 BTC to 3.125 BTC.

Previous halvings occurred in November 2012, July 2016, and May 2020, with Bitcoin posting triple-digit price increases to new record highs over the subsequent 12 to 18 months before embarking on significant downtrends.

These bear markets ran out of steam about 15-16 months before the next halving. Bitcoin’s 56% year-to-date surge in 2023, marking a rebound from the depths of last year’s bear market, is consistent with the timing of previous price lows.

The extent of the upside expected from the halving has been, and likely will continue to be, dependent on the major central banks – the US Federal Reserve, the European Central Bank, the Bank of Japan and the People’s Bank of China – increasing their M2 money supply on a year-over-year basis.

The total M2 of the four major central banks represents the total value of their respective fiat currency circulating in the market.

The previous post-halving bull runs were characterized by aggregate M2 money supply growth of 6% or more from the Fed, ECB, BOJ and PBOC. Meanwhile, the bear markets coincided with a slowdown in the rate of money supply growth.

The pattern validates the popular argument that Bitcoin is purely a play on fiat liquidity.

Although the growth rate of the total M2 money supply has developed positively this year, it is still well below the 6 percent mark. The Fed and most other central banks have been raising interest rates rapidly over the past 12 to 18 months to curb inflation, and the likelihood of liquidity easing again in the coming months appears remote.

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