Cryptocurrency analyst Benjamin Cowen on Wednesday argued that unlike commonly assumed, Bitcoin (CRYPTO: BTC) does not rise with M2 money supply, which explains weakness against equities.
Global Net Liquidity Explains Bitcoin’s Five-Year Lag
Cowen detailed on his podcast how rising M2 does not guarantee Bitcoin rallying.
M2 measures cash and readily available deposits across the financial system. It reached record highs in 2014, 2018 and 2022, yet Bitcoin still suffered major declines during those years.
The metric Cowen tracks instead is global net liquidity, which combines the balance sheets of major central banks including the Federal Reserve, ECB, and the central banks of Japan, China, and the UK, then subtracts money parked in the Fed’s reverse repo facility and the U.S. Treasury General Account.
That number currently sits around $25 trillion, well below the $30 trillion peak in 2021 and 2022, leaving a $5 trillion gap that Cowen argued fully explains why Bitcoin has lagged equities despite M2 continuing to climb.
Why Cowen Sees 2019 as the Closest Market Parallel
Cowen drew a direct parallel to 2019, when M2 rose, stocks hit all-time highs, and Bitcoin still dropped because global net liquidity was not expanding.
Bitcoin only reversed when the pandemic forced central banks to flood the system with real liquidity.
The current cycle mirrors that setup but on a larger scale, with AI-driven mega-cap strength keeping the S&P 500 (NYSE:SPY) elevated and removing any pressure on central banks to act.
“The reason why Bitcoin has been stuck in traffic on Struggle Street for the last five years is because net liquidity remains low,” Cowen said.
Central Bank Expansion Could End Bitcoin’s Underperformance
Cowen noted that Bitcoin’s shallow drawdown this cycle, far milder than the 75% to 85% crashes of prior bears, actually supports his thesis.
The market topped on apathy rather than euphoria because net liquidity never ran hot enough to fuel a real speculative blowoff.
The trigger for Bitcoin’s next outperformance cycle is straightforward: central banks need a reason to expand balance sheets again. Until that happens, Bitcoin keeps lagging equities.
“The paradox is resolved,” Cowen said. “The answer was always there and it’s been there since 2019.”
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