U.S. Treasury Actions Drive Bitcoin's Decoupling from Global M2 Trend

Executive Summary

Raoul Pal, founder of Global Macro Investor, has identified a significant divergence in Bitcoin's price behavior from its historical correlation with the global M2 money supply. This decoupling, observed since July 16, is attributed to the U.S. Treasury's actions to replenish its General Account (TGA) through the issuance of approximately $500 billion in bonds, thereby withdrawing substantial liquidity from the market. While global M2 has continued to expand, Bitcoin has exhibited a sideways trading pattern. Pal suggests this liquidity drain may be concluding as the TGA nears its target level, potentially signaling a resumption of Bitcoin's M2-driven rally.

The Event in Detail

Since early 2023, Bitcoin's price movements have typically shown a 12-week lagging correlation with the global M2 money supply, indicating a three-month lag for liquidity impacts on the cryptocurrency market. However, this established pattern ceased around July 16. Despite continued global M2 expansion, Bitcoin has entered a sideways trading phase. Pal asserts that the U.S. Treasury initiated a substantial liquidity withdrawal by issuing approximately $500 billion in bonds to replenish its Treasury General Account. This action increased the TGA balance to nearly $800 billion, effectively reducing available market funds and directly impacting liquidity-sensitive assets, notably Bitcoin. This liquidity withdrawal is distinct from other market factors, as technology stocks and gold have simultaneously reached new highs, indicating sustained overall risk appetite in other sectors. Separately, Bitcoin's long-term holder supply is reported to be falling, with investors realizing profits, which introduces additional selling pressure and potential volatility.

Market Implications

The U.S. Treasury's liquidity operations have created a market dynamic where Bitcoin's price action has temporarily diverged from a key macroeconomic indicator. This divergence underscores the sensitivity of crypto assets to shifts in global liquidity. Historical data indicates that the 180-day rolling Pearson correlation between Bitcoin and a forward-shifted global M2 index has oscillated significantly, suggesting a structural periodicity rather than a persistent linkage. While the post-ETF period from January 2024 through April 2025 maintained a more positive long-term correlation of roughly 0.65, this correlation is currently weakening. Other variables, such as ETF inflows, macro policy surprises, and halving narratives, frequently modulate the relationship between liquidity trends and Bitcoin's directional movement. For example, Q1 2024 saw BTC rise during spot-ETF approvals and halving excitement, despite muted global M2 movements, leading to a negative 30-day correlation before aligning again by April 2025. The most recent liquidity inflection since September 2024, a 2% uptick in global M2, coincided with a nearly 70% surge in the BTC spot price, now trading at approximately $93,800, indicating amplified sensitivity or additional catalysts beyond traditional liquidity models. ETF flows and stablecoin credit expansion represent parallel liquidity streams not captured by standard M2 constructs.

Expert Commentary

Raoul Pal postulates that the TGA is approaching its target level, and the impact of the liquidity withdrawal is likely to dissipate by the end of the current month. He suggests this could enable Bitcoin to resume its upward trajectory, realigning with M2 supply growth. Arthur Hayes, co-founder of BitMEX, supports a similar theory, having previously labeled the $850 billion mark for the TGA as a critical liquidity turning point. Hayes predicts a reversal once the TGA stabilizes, channeling funds back into crypto and other risk assets. However, critics like André Dragosch dismiss strong TGA-liquidity-Bitcoin correlations as "useless." The observation that technology stocks and gold have continued to exhibit strength while Bitcoin stagnates also leads some analysts to question whether liquidity alone accounts for Bitcoin's divergence. Additionally, selling pressure from long-term holders, defined as entities holding coins for at least 155 days, is seen as a contributing factor. This profit-taking often aligns with distribution phases in uptrends, potentially increasing volatility.

Broader Context

The interplay between U.S. Treasury dynamics, Federal Reserve policy, and market sentiment will likely define the next phase of cryptocurrency trajectory. If Pal's analysis is correct and the liquidity drain concludes, Bitcoin could resume a rally driven by global M2 growth, potentially leading to significant price appreciation. The historical patterns of Bitcoin's correlation with M2, despite periodic decouplings, suggest that liquidity remains a primary driver for the asset. The TGA's buildup has historically drained liquidity from markets, and its stabilization could reverse this trend. The current situation highlights the evolving nature of Bitcoin's market drivers, which now include not only broad monetary aggregates but also factors like ETF inflows and strategic profit-taking by long-term holders. The market continues to monitor these complex interdependencies for signals regarding future price movements and broader Web3 ecosystem trends.