2020 was a year of money first for all of us, and probably one of them that went a tad under the radar is that the world created more new units of money last year than it ever did in previous years.
Has it helped?
I am not sure, but they keep doing it, and I doubt it will slow down in 2021.
If anything that we all still happily allows it to happen without much protection and many actually support unsound money and the policies running, it means that there is very little willpower on the side of restraint.
The desperation of governments wanting to get the economy up and running means they will be willing to sacrifice their currency to fund anything they feel will stimulate growth.
If it cost a billion to generate a 250 million extra in GDP, you bet they’re going to do it, even if the returns continue to diminish with each canon of cash shot into the economy.
What is the M2 Money supply?
One way we can look at how much money is sitting around chilling, waiting for newly minted friends to join, is via M2 money supply.
M2 is a calculation of the money supply that includes all elements of M1 as well as “near money.”
- M1 includes cash and checking deposits,
- Near money refers to savings deposits, money market securities, mutual funds, and other time deposits.
These assets are less liquid than M1 and not as suitable as exchange mediums, but they can be quickly converted into cash or checking deposits according to Investopedia.com.
M2 Money is basically things we invest in from stocks, EFTs, derivatives, it’s money in a different vehicle, and all have their own markets where they are traded.
When new money is created, it often takes it’s formed in the shape of a security like a bond, and through various investment strategies, gets transformed into things like equities.
How Bitcoin is reacting to new money
Source: Twitter: Eric Wall – @ercwl
If we look at a Bitcoin chart vs the growth of the M2 money supply, you’ll notice that BTC is slightly ahead of that growth. These indicators are not definitive by any means, but it sure does look like Bitcoin is trying to front-run the expansion of the money supply.
As new money is created, Bitcoin responds and keeps its holders at a higher return than the increase in supply.
I know this means nothing because it’s all about the velocity of money and how it generates GDP, which Bitcoin is probably pretty rubbish at doing right now. Still, like a savings tool and hedge against debasement, it sure looks like it’s responding favourably in these conditions.