A surge in global liquidity of 108T should send Bitcoin to the month. Why isn’t that?

Global M2 Money Supply is the highest ever. Why isn’t Bitcoin rising soaring? Is something broken or is there a delay breakout coming?

Markets when the Fed is approaching

Markets are heading for the Federal Reserve March 18-19 meeting, increasing uncertainty as the economic situation remains unstable. The stock market is stumbling, inflation remains persistent, and investors are reassessing expectations for interest rate cuts.

In addition to unpredictability, President Trump’s tariff policies and federal layoffs have raised new concerns about the broader economic outlook, injecting even more instability into already vulnerable markets.

Despite the turbulence, the Federal Open Market Committee is widely expected to not change interest rates to 4.25-4.5%, with CME Group’s FedWatch tool assigning a 99% chance without immediate adjustments.

However, the real focus lies in the timing of first-class reductions. Current forecasts suggest a potential decline in June, with a 55% chance of moving the rate from 4-4.25%.

Overall, investors expect a cumulative cut of three-quarters of percentage points in 2025, potentially reducing the Fed’s benchmark rate to 3.5-3.75%.

Amid this uncertainty, financial markets are responding rapidly. The S&P 500 fell more than 8% from its all-time high on February 19, while the Nasdaq fell 4% on March 10. This is the worst trading day since 2022.

Meanwhile, the volatility index has skyrocketed to its highest level since August, reflecting the challenges investors face in manipulating changing policies, particularly Trump’s tariff hikes.

Bitcoin (BTC) is struggling to find scaffolding with its range of around $82,300 as of March 18th.

The question I’m asking is, what’s coming next? How will the market respond if the Fed shows policy changes? And what will this mean for cryptography in the coming weeks?

M2 fluidity rising

Global liquidity is rising rapidly, and history suggests that risky assets like Bitcoin could respond quickly. As of March 10th, the Global M2 Money Supply reached an all-time high of $108.2 trillion, up 3.5% from its 2025 low of $104.5 trillion recorded on January 6th.

However, in this cycle, Bitcoin price action shows discrepancy despite rising liquidity, raising questions about whether the response is slow.

M2 Money Supply serves as a broad measure of global liquidity, including cash, confirm deposits, and easily convertible nearby assets.

As M2 expands, liquidity usually advances to high-yield investments, leading to rallies of stocks, commodities and Bitcoin. Conversely, contraction at M2 often coincides with the risk-off period in which assets struggle to find opposite momentum.

A closer look at historical data highlights the strong correlation between Bitcoin and M2 growth. Bitcoin’s most important bull run occurred during a period of rapid liquidity expansion, but the M2 slump precedes a decline in prices or long-term consolidation.

However, an important observation is that Bitcoin does not respond immediately to a surge in liquidity. The survey suggests an average delay of about 10 weeks ago, when Bitcoin fully reflects changes in M2 growth.

The above M2 charts further support this story. Bitcoin’s recovery from the lows of 2022-2023 coincided with a significant increase in M2 growth. Similarly, in mid-2024, Bitcoin hit a new high following an updated expansion of M2.

However, in early 2025, Bitcoin has entered a consolidation period despite the M2 continuing to rise. The lacking component appears to be at the rate of change in fluidity, not at the absolute level.

A deeper analysis of Bitcoin’s year-over-year returns related to changes in Yoi in M2 reveals a clearer pattern. Bitcoin’s strongest bull run tends to appear when liquidity growth accelerates rapidly rather than staying stable.

So merely expanding fluidity is not sufficient to trigger a breakout. Acceleration of M2 growth is an important factor.

Quantitative tightening may be nearing the end

The Federal Reserve Quantitative Tightening (QT) program, which has been running since June 2022, may be approaching the final stretch.

As of March 18th, more than $6.2 million has been bet on Polymarket, with traders 100% allocating the possibility that the Fed will end QT by April 30th.

At its core, QT is the opposite of quantitative mitigation (QE). Instead of injecting liquidity into the system by purchasing bonds, the Fed allows assets to mature from the balance sheet and effectively distribute and withdraw money.

The policy, along with aggressive rate hikes, helped to curb inflationary pressures, but also created market-weighted liquidity constraints. Despite QT’s tightening effects, stocks and crypto assets managed to gather, but concerns have emerged that a decline in balance sheets could drain liquidity at the time of increasing economic uncertainty.

Minutes from the January FOMC meeting revealed that several policymakers are open to slowing or suspending QT, mainly due to uncertainty surrounding the federal debt cap and the uncertainty that evolves the money market situation, Reuters reported.

Analysts note that the extraordinary measures by the Treasury to fund government operations are injecting temporary liquidity into the system.

This has created the risk that the Fed can accurately assess true reserve levels, increasing the risk that it is too liquid, and that it could increase financial market volatility.

Despite growing expectations for a short-term end to QT, not all analysts agree to timing.

Barclays maintains forecasts that QT will end between September and October, and claims it will be inefficient to suspend in March or resume cuts later.

Meanwhile, analysts at Wrightson ICAP believe the Fed is likely to slow down the pace of asset outflows rather than completely shut down, noting that the Fed can later resume asset purchases and create a communication challenge for policymakers.

Others like research firm LH Meyer can prove difficult to resume processes when they pause in QT, so be aware that pause in QT is at risk of a complete halt, especially when the market situation is vulnerable.

The Fed’s ability to measure the right stop point is complicated by a mixed signal from the liquidity indicator.

A survey of major banks and money managers conducted prior to the previous policy meeting suggested that QT could end between June and July.

Fed Holdings, which has already fallen from its $9 trillion peak in 2022 to $6.8 trillion, is expected to fall to another $6.4 trillion by the end of the process.

However, estimates show that bank reserves have only dropped to $3.125 trillion from the current $3.3 trillion, and the Fed’s reverse repo facility (a measure of excess liquidity) has fallen below $100 billion throughout February, indicating that financial conditions may be more tense than already intended.

Historically, rewinding QT has been a sensitive process and could effectively mark the end of the program if the Fed signalled a halt in the coming months.

If that happens, the impact could be broader. Long-term long-term interest rates and lower demand for risky assets such as Bitcoin and stocks.

Liquidity surges meet system uncertainty

While the rise in M2 money supply was a strong precursor to the Bitcoin Bull Run, on-chain indicators and institutional development suggest that the short-term outlook may not yet be in line with this trend.

Despite the global M2 reaching record highs, Bitcoin’s price action shows signs of fatigue. Cryptoquant CEO Ki Young Ju warns that “all on-chain metrics signal the bear market,” pointing out fresh liquidity will be drained and new whales will offload BTC at low prices.

His analysis, which applies Principal Component Analysis (PCA) to various metrics, suggests that Bitcoin prices may not respond immediately to rising liquidity.

One of the key metrics is MVRV (value from market value to realised value). This helps you determine whether BTC is overvalued or undervalued, comparing the market value of Bitcoin to the price you last moved.

Another important metric is SOPR (used output profit ratio). This measures whether a Bitcoin holder is selling profits or losses.

Additionally, NUPL (Net Unrealized Profit/Loss) tracks the overall profitability of Bitcoin holders based on unrealized profits and losses across the network.

Based on these metrics, Bitcoin could be in a 6-12-month consolidation phase. This is a pattern that is historically seen after a major bull runs.

If this is the case, Bitcoin’s response to increased liquidity could be delayed rather than immediate, reflecting the previous cycle that took months for liquidity expansion to be converted into bullish price action.

At the same time, the system’s headwinds are increasing. The US has recently adopted a strategic reserve for Bitcoin, indicating a significant change in the way governments view Bitcoin as an asset.

However, the move has not been well received by global financial institutions. Max Keizer, a longtime Bitcoin advocate and senior Bitcoin advisor to the El Salvadoran government, points out that the IMF and credit rating agencies have begun to downgrade US credit ratings, citing the “impact of destabilization” of Bitcoin.

Keizer adds that the IMF is recommending an immediate liquidation of the BSR, raising concerns about potential political pressures on US Bitcoin holdings.

If the US government begins selling Bitcoin reserves under such pressure, it could introduce even more downward momentum, at least in the short term.

Investors should be aware of short-term volatility while closely monitoring liquidity trends and government actions. Bitcoin moves over the next few months may require patience before the next major move can be shaped.

Trade wisely and invest no more than you can afford to lose.