Cryptocurrency price fluctuations on the surface seem to reflect market sentiment, but fundamentally they are closely related to global economic liquidity. Besides the well-worn topic of interest rate cut expectations, there are a bunch of macroeconomic indicators operating behind the scenes to control the rhythm of coin price movements—these factors directly influence the long-term performance of cryptocurrencies by altering liquidity, risk appetite, and capital flows.

**Money Supply (M2): A Barometer for Bitcoin's Rise and Fall**

Historical data is in front of us. During the pandemic from 2020 to 2021, the Federal Reserve, ECB, and Bank of Japan all launched quantitative easing measures, causing a sharp increase in global M2. The result? Bitcoin soared from below $10,000 to a record high of $69,000. This is no coincidence—M2 expansion means there’s too much money in the market, and some of that capital naturally flows into high-risk, high-reward assets like Bitcoin.

The reverse is also true. In 2022, the Federal Reserve began a rate hike cycle, tightening monetary policy, and M2 growth started to shrink. Bitcoin’s price dropped by over 70%. The logic is clear: liquidity tightening leads to the sell-off of high-risk assets.

**Cross-country M2 Comparison: Clues to Capital Flows**

Central bank policies in different countries also influence how funds are allocated in the crypto market. The Bank of Japan has maintained an ultra-loose monetary policy for a long time, with domestic interest rates being ridiculously low, which has spurred a large amount of yen arbitrage trading. Japanese investors borrow cheap yen and exchange it for other assets (including cryptocurrencies) to profit from interest rate differentials—once the Bank of Japan begins raising interest rates, these arbitrage trades are forced to close, impacting the crypto market as well. The driving force behind this is changes in M2 growth and shifts in liquidity.