Bitcoin growth lags behind the latest money supply inflows

Bitcoin (BTC) broke out above $66,000, raising the expectations for ‘Uptober’, a month to abandon the latest price weakness. Two weeks into the month, however, BTC growth is still lagging from predictions and factors like the M2 money supply.

Bitcoin may be preparing for a bigger rally, though there may be barriers to break. The past quarter saw BTC move sideways. At the same time, global M2 supply continued to flow, especially after the US Fed took the path of quantitative easing. In 2024, the M2 money supply started expanding again in April, rising from 103T to more than 107T going into the final stretch of 2024.

BTC price expansion lags behind the M2 inflows in the past months. | Source: BGeometrics

BTC continued with its range-bound, sideways trading, while M2 money supply growth has accelerated. Most of the inflows for the past year happened in the third quarter, while BTC suffered several corrections and traded within a range. In the past, BTC has responded favorably to growth in the M2 supply. The metric suggests a move to easier liquidity, which may flow into riskier investments.

BTC is now positioned even better to benefit from the extra liquidity. Both retail and corporate buyers may choose BTC, especially on the expectations of a move to a higher price range.

BTC does not immediately react to a growing money supply. One of the possible scenarios is that quantitative easing has not started in earnest. After the 2020 M2 expansion, BTC did not react immediately, and in fact lagged for years, especially after the crash of FTX. With no similar factors in 2024, BTC may benefit from M2 expansion, though lagging behind the trend by weeks or months.

BTC aims to break above 200-day MA

In the short term, BTC is yet to show signs of an imminent rally. The 200-day moving average has been rejected several times in the past weeks.

As of October 14, BTC finally broke out above $66,000, trading above the 200-day MA of $63,453.14. A break is seen as a sign of a potentially bigger rally.

The latest price move broke a trend of price weakness, but the 200 MA indicator does not guarantee a parabolic rise. In Q3, BTC still managed to break above the trendline, only to go for a deeper correction soon after. The question for BTC remains whether bears will once again attempt to short the price levels and spark a maximum pain rally to liquidate the leveraged positions.

Outside of the rapid daily price moves, BTC may rally after a stronger weekly close. Weekly BTC prices are still trending downward after the breakdown from $70,000. Since the March market peak, BTC has yet to achieve a weekly breakout from the downward channel.

In the short run, sentiment remains subdued, while the Bitcoin fear and greed index is at 48 points, or neutral. BTC expanded its dominance to 56.9% of the entire crypto market valuation, while altcoin season expectations were dashed once again.

BTC looks ready to break the trend

BTC seems ready for the real bull market to start – but there are still cautious traders that see the recent price moves as a bull trap.

BTC still managed to break above the monthly falling wedge, signaling a potential breakout to a higher range. BTC bull rallies are usually very fast, taking about 10% of the time on the market for the biggest gains. The leading coin is still in the period of 18 months after its Halving, where the biggest and fastest gains can happen.

In the short term, BTC is expected to make shallow retests of its lower levels, while breaking above $70,000. The run-up to the US Presidential Elections is also a key factor for emerging enthusiasm and more irrational price moves.

According to the Rainbow Chart, BTC is still in the Buy/Accumulate zone. In this cycle, BTC had much smaller drawdowns, though not yet a parabolic rally to six-digit valuations. The halving narrative gets revisited as a source of expectation for extending the bull market into 2025.

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