Bitcoin and M2 liquidity are temporarily decoupled; analysts say this is a reset rather than a trend reversal.

On November 9, 2025, Bitcoin’s price found support at the key level of $100,000, retreating 21% from the October high of $126,000, raising concerns about the end of the bull market. Analysts point out that the historical correlation between Bitcoin and global M2 liquidity broke after the U.S. debt ceiling adjustment in July. This decoupling mainly stems from government borrowing temporarily draining market liquidity. Although there are differing views within the crypto community on the market phase, Arthur Hayes and Tom Lee, co-founders of Fundstrat, agree that the deleveraging event in October was a healthy reset. Options market data show large investors are positioning for wide swings between $90,000 and $160,000.

Liquidity Dynamics and Decoupling Mechanism

There is a clear transmission pathway through which global M2 liquidity impacts Bitcoin valuation. M2 measures broad money supply, including cash, demand deposits, and time deposits, with growth typically associated with increased risk asset allocations. Historical data shows that Bitcoin bull markets in 2017 and 2021 coincided with macro environments where M2 growth exceeded 15%, whereas since 2025, the growth rate has only been 3.2%.

The Federal Reserve’s General Account (TGA) adjustments became a key variable. After the July debt ceiling resolution, the Treasury issued $1.2 trillion in short-term government bonds to replenish cash reserves exhausted during the pandemic, directly withdrawing liquidity from the banking system. Quantitative analyst Jesse Eckel notes, “The issue isn’t the total liquidity but who holds it. When funds shift from risk-tolerant institutions to the Treasury, high-risk assets like Bitcoin are the first to be affected.”

Structural changes in dollar liquidity have intensified the decoupling. Although the Fed has halted quantitative tightening, reverse repurchase agreements (RRP) still total around $450 billion, and foreign official institutions continue to increase holdings of U.S. Treasuries. This “quality migration” means that while ample dollars exist within the system, the allocation to risk assets has decreased. Goldman Sachs estimates that the proportion of global dollar liquidity allocated to cryptocurrencies has fallen from 0.9% in 2024 to the current 0.6%.

Market Structure Reset and Leverage Cleanup

The deleveraging event on October 10 served as a necessary cleansing. A record $20 billion in positions were liquidated in a single day, but this forced unwinding significantly improved market structure. Perpetual contract funding rates dropped from 0.05% in September to 0.008%, and median leverage fell from 25x to 12x. This deleveraging laid the foundation for subsequent healthy gains.

Institutional positioning adjustments reflect rational expectations. The options skew curve indicates investors are simultaneously buying $90,000 protective puts and $160,000 calls, a “multi-leg strategy” suggesting expectations of short-term volatility but a stable medium-term trend. Data from Deribit shows open interest in $150,000 call options expiring March 2026 has increased by 120%, highlighting long-term optimism contrasting with short-term caution.

On-chain data validate the reset narrative. Bitcoin’s realized value-to-transaction value ratio has fallen to 1.05, near historic lows associated with market bottoms. Meanwhile, long-term holder (LTH) supply share has risen to 76%, a behavior pattern that typically precedes price reversals by 3–6 weeks. Glassnode analysts note, “Current on-chain features closely resemble those during the reset periods after March 2020 and January 2023.”

Macroeconomic Environment and Policy Outlook

The liquidity environment in 2026 is poised for improvement. The U.S. Treasury expects to stabilize the TGA balance around $600 billion in the first quarter of 2026, ending the ongoing drain. Additionally, the Fed’s rate-cut cycle could commence in a timely manner, with CME FedWatch indicating a 65% chance of rate cuts before June 2026. This policy mix could rekindle risk appetite.

Geopolitical factors also provide additional liquidity support. In October, Middle Eastern sovereign wealth funds increased their crypto allocations from 0.5% to 1.2%, implying potential inflows of approximately $40 billion. Meanwhile, Japan’s central bank maintains yield curve control, ensuring continued JPY liquidity through arbitrage trading.

Technical and liquidity factors may re-couple. Models suggest that when U.S. bank reserves rise above $3.3 trillion (current at $3.1 trillion), Bitcoin’s correlation with M2 could return to its historical average of around 0.7. Such a scenario could materialize by Q2 2026, providing liquidity for the next upward move.

Investment Strategies and Cycle Positioning

Asset allocation based on the reset thesis. Gradually build core positions in the $100,000–$105,000 range, with a target allocation of 40–50% of the crypto portfolio. Confirmed trend recovery upon breaking above $115,000, investors can increase exposure to 60%. A stop-loss at below $92,000 aligns with support levels established in Q4 2024.

Options strategies offer asymmetric risk exposure. Selling $95,000 puts and buying $130,000 calls can create a risk-reversal profile, providing upside exposure at zero cost. The current volatility surface shows that upside options are relatively cheap, presenting an arbitrage opportunity for cost-efficient positioning.

Alternative indicators to validate the framework include Goldman Sachs’ Financial Conditions Index, global manufacturing PMI, and miner reserve changes. When at least two of these indicators show improvement, it signals a warming liquidity environment. Manufacturing PMI has been rising for three consecutive months, and miner reserves increased by 8,000 BTC in October, indicating internal confidence.

Conclusion

The temporary decoupling between Bitcoin and M2 liquidity reflects a short-term mismatch between technical adjustments and macroeconomic shifts, not a fundamental break in correlation. The October deleveraging cleared excessive speculation, laying a healthier foundation for market growth. As government borrowing impacts diminish and monetary policy potentially shifts, liquidity conditions are expected to improve significantly in 2026, reactivating Bitcoin’s monetary properties. At current levels, the market offers a rare risk-reward opportunity for patient investors. Those who can distinguish cyclical noise from trend signals may achieve outsized returns in the next rally.