Bitcoin (BTC) has achieved a new milestone, reaching a market capitalization equivalent to approximately 1.7% of the global M2 money supply. This figure, amounting to around $2.35 trillion, highlights Bitcoin's increasing macroeconomic significance and its growing role as a store of value and a hedge against inflation. The global M2 money supply is currently estimated at $140 trillion. This milestone comes as the U.S. Federal Reserve Chair Jerome Powell signaled a potential interest rate cut, further impacting the cryptocurrency market.
Analysts closely monitor Bitcoin's share of the global money supply as an indicator of its macroeconomic adoption. The correlation between liquidity expansion and Bitcoin's performance is well-established among macro investors and experts. Key industry figures like Raoul Pal and Michaël van de Poppe have emphasized that global liquidity significantly drives Bitcoin's price. Pal noted that up to 90% of Bitcoin's price could be driven by rising global liquidity. Bitcoin's macroeconomic trajectory aligns with past bull runs following M2 expansions, increasing its systemic relevance within risk assets and institutional portfolios.
Recently, Federal Reserve Chair Jerome Powell hinted at a possible interest rate cut in September, which prompted a rally across financial markets. Speaking at the Jackson Hole Economic Symposium in Wyoming, Powell suggested that the balance of risks is shifting, citing potential weakness in the labor market. He stated that the Fed's policy rate is now 100 basis points closer to neutral than it was a year ago and that the stability of the unemployment rate and other labor market measures allows the Fed to proceed carefully when considering changes to its policy stance.
Following Powell's remarks, the odds of a September rate cut surged to nearly 90%, according to CME FedWatch. In response, Bitcoin's price jumped by over 2%, reaching approximately $116,000. Other cryptocurrencies, such as Ethereum, also experienced significant gains. Lower interest rates typically lead to increased investment activity in risk-on assets, as the cost of borrowing decreases and investors seek higher yields. A rate cut could renew enthusiasm in the crypto space, potentially leading to a resurgence in Bitcoin and altcoin prices.
However, some analysts believe the Fed will not rush into aggressive easing, despite opening the door to potential rate cuts. This measured approach could create an interesting dynamic for risk assets like Ethereum. It's also important to note that Bitcoin's price experienced a pullback after reaching a new all-time high, triggered by U.S. Producer Price Index (PPI) data that showed the highest annual increase in over two years. Despite this, Bitcoin remains resilient and continues to hold its long-term uptrend.
Bitcoin's limited supply and perceived store-of-value properties make it a compelling alternative to traditional monetary assets. As central banks worldwide engage in monetary expansion, eroding the purchasing power of fiat currencies, assets like Bitcoin and gold have seen growing interest. This trend reflects a broader shift in investor preferences toward hard money amid concerns over inflation and economic instability. While the Fed has held rates steady, economic conditions may warrant a change in the Fed's rate-policy stance. The cryptocurrency market remains sensitive to any signals from the Federal Reserve, and future policy decisions will likely have a significant impact on Bitcoin's price and adoption.
