U.S. M2 Money Supply Climbs to New High, Leaving Bitcoin’s Outlook Mixed
Historically, changes in the M2 money supply have tended to influence inflation after some delay, as noted by the St. Louis Federal Reserve.
The United States’ broad measure of money in circulation has surged to an unprecedented level, reflecting a growing economy but also raising questions about potential impacts on bitcoin (BTC).
Data from barchart.com shows that the M2 money supply—which includes physical cash, bank deposits, and money market fund holdings—rose to $21.94 trillion by the end of May. This surpasses its earlier record of $21.72 trillion, set in March 2022. Year-over-year, M2 increased by 4.5% in May, matching April’s pace and marking the fastest annual growth rate in nearly three years, according to Yahoo Finance.
For crypto investors, this development presents both opportunities and concerns. A rising money supply usually signals looser financial conditions and stronger economic activity, which could encourage risk-taking in assets like cryptocurrencies.
Yet, analysts at TIOmarkets in Cyprus warn that if the money supply expands faster than the economy, it could stoke inflation, prompting the Federal Reserve to consider higher interest rates—a move that would typically cool demand for risk assets like bitcoin.
In past cycles, rapid growth in M2 has preceded inflationary surges by about a year. The personal consumption expenditures (PCE) price index, the Fed’s favored inflation gauge, began climbing in February 2021 after M2 growth accelerated starting in February 2020. Conversely, as M2 growth slowed in 2023, PCE inflation started easing, the St. Louis Fed reported in a blog post.
If similar patterns repeat, the latest increase in M2 could contribute to inflationary pressures in the months ahead, complicating the Fed’s ability to lower rates to 1%, a target recently proposed by President Donald Trump.
