Cryptocurrency enthusiast and radio host Mark Moss touts Bitcoin as the ultimate indicator of gauging overall market health. Moss challenged the traditional focus on earnings and economic data. 

Follow The Money, M2 Supply, And Bitcoin Positively Correlate

In a post on X, Moss reiterated this preview by highlighting the stellar record posted by billionaire investor Stanley Druckenmiller. In 20 years, the radio host notes that Druckenmiller’s firm has averaged about 30% in annual return simply by following liquidity. 

Earlier, the billionaire investor revealed that they usually follow liquidity, a key metric that the United States Federal Reserve Board decides. Druckenmiller also emphasized that liquidity, not earnings or other fundamental indicators, moves the market.

To reiterate and prove that this approach works, Moss shared a chart showing the relationship between the M2 money supply in the United States and how Bitcoin prices have been trending since 2013. The analyst is confident that solid market data shows Bitcoin is a reliable gauge of tracking overall market health, considering its close positive correlation with the M2 supply.

Bitcoisdata notes that the M2 money supply rose roughly 38% in the past four years. During this time, Bitcoin rallied, outperforming the rest of the market. From early March 2020, when the United States Federal Reserve began intervening, slashing rates because of the impact of COVID-19, BTC rallied nearly 10X. Meanwhile, the stock market, driven by free money, also grew sharply.

Unlike traditional assets whose valuation is tied to metrics like earnings or macroeconomic data like interest rates, Bitcoin is driven by supply and demand dynamics. This relationship is massively shaped by liquidity conditions, primarily dictated by the United States central bank. 

Eyes On The Federal Reserve, Which Way BTC?

Based on this dynamic, Moss argues that investors can gain valuable insights into the overall market sentiment towards risk and liquidity by monitoring Bitcoin’s price action. 

BTC prices tend to rise whenever the market is optimistic and liquidity is rising–or expected to recover. The coin has been rallying in the past few months after the United States Federal Reserve communicated to the markets that they hope to slash rates for the first time in months. Improving labor market conditions, strengthening the economy, and tapering inflation metrics advise the central bank to change its monetary policy.

In the immediate term, how Bitcoin prices evolve remains to be seen. The coin is firm when writing, easing above $46,500. Market participants are optimistic, expecting more gains in the weeks ahead.

Feature image from Canva, chart from TradingView