Bitcoin could face $20,000 drop as global money supply falls

Bitcoin (CRYPTO:BTC) recently experienced its largest weekly decline since August, with a 15% correction attributed to tightening global liquidity.

Experts predict that Bitcoin could drop by as much as $20,000 in the coming weeks, following a $4.1 trillion decline in Global Money Supply (Global M2) over the past two months.

Global M2, which includes cash, demand deposits, and term deposits, is a key indicator of liquidity in the global economy.

A decrease in Global M2 often leads to pressure on both stock and cryptocurrency markets.

Bitcoin's price historically correlates with changes in Global M2, with a 10-week lag, according to The Kobeissi Letter. In October, when Global M2 reached a record $108.5 trillion, Bitcoin hit an all-time high of $108,000.

However, with Global M2 now at $104.4 trillion, the lowest level since August, experts predict further downside for Bitcoin.

"If the relationship still holds, this suggests that Bitcoin prices could fall as much as $20,000 over the next few weeks," The Kobeissi Letter stated.

Despite the potential downside, Bitcoin's growing illiquid supply could offer some support.

As Bitcoin becomes increasingly scarce due to a rising number of coins held long-term, this supply deficit could act as a counterbalance to macroeconomic headwinds.

“Bitcoin is currently balancing the prospects of increasing macro headwinds stemming from the decline in US and global liquidity and ongoing on-chain tailwinds stemming from the strong BTC supply deficit,” explained André Dragosch, Head of Research at Bitwise.

While the ongoing market volatility may create some buying opportunities, experts suggest that the pressure on Bitcoin is likely to continue into early 2025.

At the time of reporting, the Bitcoin price was $94,333.34.