According to macro expert Raoul Pal, if one key measure is any indication, digital asset markets might be preparing for a dramatic trend reversal to the upside.
In a recent market report for Real Vision, Pal asserts that the liquidity provided by the M2 money supply drives crypto markets the most.
M2 money supply is approximately equivalent to the entire quantity of currency in circulation plus near money, or highly liquid non-cash assets quickly convertible to cash.
While many crypto investors are focused on the Bitcoin halving, when the amount of BTC produced every block reward is reduced by half, M2 is likely to play a more significant role, according to Pal.
“Global liquidity drives the cryptocurrency market, not the economic cycle. Thus, this is the worldwide M2 trend deviation. Therefore, it is the rate of change of M2 and its departure from the trend. In addition, it is around 1.5 standard deviations above the trend and rising.
That time it occurred, both at the peak and bottom, caused the turns in the cryptocurrency markets because liquidity drives the cryptocurrency market. Remember that this is not a cyclical asset; therefore, unlike oil and commodities, it does not return to its previous value. It is a model of network adoption that increases and shifts to the right over time with these large, dynamic bands.
Many individuals believe that this is caused by halving. Maybe the halving, the decrease in Bitcoin’s supply every four years, is a factor since it correlates with liquidity. So what you’re doing is increasing market liquidity, which allows more individuals to deploy money in a low-supply condition, which is the halving. You do not require the halving as a prerequisite.”