Bitcoin 'Liquidity Smoke Alarm' Fails to Rally Despite M2 Growth

Veteran investor Lawrence Lepard has described Bitcoin (BTC) as a 'liquidity smoke alarm', which is more sensitive to short-term liquidity conditions than long-term currency debasement.

Lepard made this comparison on the Honest Money podcast, where he discussed why Bitcoin's price has 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.

Lepard explained that Bitcoin's weakness despite growing M2 comes down to how each asset is 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.' In contrast, gold buyers tend to take a long-term view.

Lepard expects that the financial system's tight liquidity will change once the Federal Reserve is forced into another round of money printing, which he believes could happen within the next 16 to 18 months. He pointed to the market's reaction during the COVID-19 crash as a precedent for how this gap eventually closes.