Lawrence Lepard Explains Bitcoin’s M2 Disconnect: ‘It’s A Liquidity Smoke Alarm’

• Lawrence Lepard called Bitcoin a “liquidity smoke alarm,” which is more sensitive to short-term liquidity than long-term debasement.
• He compared it against gold, which he said was his “pure debasement insurance.”
• He said Bitcoin has stayed weak despite growing M2 because system-wide liquidity is currently tight.

Veteran investor and author Lawrence Lepard described Bitcoin (BTC) as a “liquidity smoke alarm” that’s more sensitive to short-term liquidity conditions than long-term currency debasement, as opposed to gold, which he described as “pure debasement insurance.”

Lepard said on the Honest Money podcast on Friday, responding to a question about why Bitcoin’s price has recently decoupled from M2 money-supply growth. M2 is a broad measure of money circulating in the economy, including cash, checking and savings deposits, and money-market funds, whose growth rate traders have long used as a debasement-trade signal for Bitcoin. The theory is that more dollars in the system should mean more demand for risk assets like cryptocurrency.

Leopard said this divergence came down to how each asset was actually used. “Bitcoin to me is a little bit of a liquidity smoke alarm,” he said. “It has a little bit of a tech component to it, a little bit of a shiny object component to it.” Gold buyers, he said, “tend to take a long-term view.” Bitcoin hasn’t been treated the same way yet, he added, “because of the volatility.”

He further added that Bitcoin stayed weak even as the money supply kept growing because liquidity in the financial system was tight right now. He expected that to change once the Federal Reserve was forced into another round of money printing, which he believed could happen within the next 16 to 18 months.

The Relation Between M2 And Bitcoin

Bitcoin’s price against Global M2 supply and its year-over-year growth rate showed that BTC was trending sharply lower over the past year even as Global M2 supply held broadly flat near record levels, with M2’s growth rate itself decelerating into negative territory in recent months. The divergence between a resilient, near-record money supply and a falling Bitcoin price was roughly the disconnect Lepard described.

Bitcoin’s price was up by 0.6% during the past 24 hours. On Stocktwits, retail sentiment around BTC remained in the ‘bullish’ zone, while chatter stayed at ‘high’ levels over the past day.

Lessons From The COVID Playbook

He pointed to the market’s reaction during the COVID-19 crash of March 2020 as the clearest precedent for how this gap eventually closes. Gold responded to the Fed’s emergency stimulus that month, soaring from $1,200 to $2,000 in two months, while Bitcoin was flat for months before skyrocketing from $10,000 to $60,000 the following year. “Gold goes first… and then eventually Bitcoin,” he said.

Lepard’s framing was also consistent with comments he made earlier this month, when he called Bitcoin “a wild animal” but noted that its drawdowns have moderated over time, from 90% in its early days to roughly 55% in the current pullback.

What Other Analysts Say About The M2 Metric

Lepard’s wording closely echoed a framing used by FLOP Labs CEO Arthur Hayes, who last week called Bitcoin “the global liquidity smoke alarm.” Hayes made a similar argument, writing that Bitcoin “awoke from its slumber and aggressively rallied” after Treasury Secretary Scott Bessent signaled increased Treasury buybacks, framing Bitcoin as a real-time gauge of dollar liquidity rather than a passive debasement hedge.

However, not all market analysts believe M2 is a metric to look at. Last week, investor and liquidity expert Michael Howell said that M2 could give “very false signals” and should not be used to gauge financial assets. 

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