21 March 2025

We thought we had a decisive break this week after positive statements from US Fed – only for Bitcoin to get rejected at $86,700 resistance. We are, sigh, back below $85,000 again. This year has been unpredictable for crypto enthusiasts but we are still hoping that change (i.e. a reversal) is just a few days away.

Let us understand what the metrics say and detail one key factor in crypto’s growth over the years – money supply. That’s our Hot Take today.

Let’s dive into it.

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The newsletter is put together by Giottus Crypto Platform. You can read all the previous issues of Cryptogram here.

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WEEKLY MACROS

• Total crypto market cap - $2.76 trillion - UP 3%    

• Bitcoin price - $84,338 - UP 2.9%

• The dollar index (DXY) - 104.14 - Unchanged

• Bitcoin Dominance - 61.5% -  Unchanged 

• Crypto Fear and Greed Index - 31 - Market is in Fearful State

THE HOT TAKE

Money Supply Key to Bitcoin Reversal

One of the most overlooked signals for asset prices is M2 money supply—essentially, all the cash, checking deposits, and easily accessible money in the financial system.

For nearly two years, the US M2 has been shrinking due to the Federal Reserve’s aggressive tightening. But that changed in 2024. As of March 2025, M2 is climbing again - up 3.8% y-o-y, the fastest pace in 30 months. And history shows that every major Bitcoin rally has happened alongside rising M2 but with an offset (more into this later).

Could rate cuts give a boost?

Liquidity isn’t just about how much money is in the system - it’s also about how expensive that money is. Right now, interest rates are at a crossroads.

For the past two years, the US Fed has aggressively raised rates to fight inflation, pushing the federal funds rate to 4.25% - 4.50%. But that cycle is coming to an end. Markets are now pricing in two rate cuts for 2025, signalling that the era of expensive money could be winding down.

Every major Fed pivot in the past decade has triggered a wave of risk-taking:

• When the Fed paused hikes in 2019, Bitcoin skyrocketed from $4,000 to $13,000 in just six months.

• When the Fed flooded markets with liquidity in 2020, Bitcoin exploded from $10,000 to $60,000 in under a year.

If the US Fed chair hints at rate cuts in upcoming FOMC meetings, markets won’t wait—they’ll front-run the decision. And with Fed reserves expected to thin out in the second half of the year, the setup for risk assets like crypto looks increasingly bullish.

Quantitative Tightening coming to an end?

Since 2022, the US Fed has been aggressively reducing its balance sheet through Quantitative Tightening (QT) - essentially pulling liquidity out of the financial system. This has been one of the most intense QT cycles in history, draining nearly $1 trillion from markets. The impact? Tighter financial conditions, higher borrowing costs, and limited access to cheap capital.

But now, that cycle may also be coming to an end.

If the Fed slows, pauses, or even reverses QT, it would mark a major shift in liquidity conditions. And when liquidity returns, markets don’t sit still—they react fast. Polymarket shows that the odds of Fed ending QT before May is 100%.

We've seen this before. When QT ended in 2019, both Bitcoin and equities surged. The increased liquidity gave risk assets the fuel they needed to rally. If a similar shift happens in 2025, we could see an even stronger reaction, especially with crypto already at the forefront of institutional adoption.

If QT ends, the floodgates of liquidity could reopen—and crypto may be one of the biggest beneficiaries.

Bitcoin v/s M2 offset is a leading indicator

One of the ways we can visualise the impact of global money supply M2 v/s Bitcoin price action is – as M2 increases, it takes time for the supply to percolate into risk-on assets. The time varies but for Bitcoin around 70 days is a good fit. As per chart below, if we map this offset, we can see that Bitcoin should bottom anytime soon as the M2 bottomed about 70 days back!

Bitcoin’s “Hot Supply” is shrinking

A key Bitcoin metric called Hot Supply—which tracks coins that are one week old or younger—has seen a massive drop over the past three months. It has fallen from 5.9% to just 2.8% of Bitcoin’s total circulating supply, more than 50% decline.

Because Hot Supply represents Bitcoin that is actively moving and available for trade. When this number drops, it means fewer freshly minted or recently moved BTC are being put into circulation—reducing liquidity in the market.

This trend is confirmed by exchange inflows. Bitcoin flowing into exchanges has dropped from 58,600 BTC per day to just 26,900 BTC per day—a 54% decline. Lower inflows typically suggest less selling pressure, which can be bullish for price. However, it also indicates that overall market activity has slowed, with both buying and selling cooling off.

In short, Bitcoin’s supply is tightening, and while demand isn’t surging just yet, reduced sell-side pressure could set the stage for a future price breakout—especially if liquidity conditions improve.

Key Takeaway

The crypto market is at a potential turning point, with multiple factors signalling a shift in liquidity conditions. M2 money supply is expanding, rate cuts are on the horizon, and the US Fed may soon end Quantitative Tightening (QT). Historically, these trends have fuelled major Bitcoin rallies, as more liquidity in the system tends to push investors toward riskier assets like crypto. If the US Fed confirms a policy shift in the coming months, markets could react sooner than most expect.

At the same time, Bitcoin’s supply is tightening, with fewer coins actively moving and exchange inflows dropping sharply. While demand hasn't surged yet, reduced sell-side pressure could set the stage for a supply squeeze, especially if liquidity conditions improve. If history is any guide, the combination of rising liquidity and a tightening Bitcoin supply could create the perfect conditions for a major price breakout.

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If you have any questions or feedback for us, write to us at [email protected]. You can check out the previous issues here.

Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.