Bitcoin Price, M2 Money, and Quant Analysts: Untangling the Correlation Chaos

Is Bitcoin's price really driven by global money supply? Quant analysts are challenging popular models, urging caution against data overfitting. Get the real scoop!

Alright, crypto enthusiasts, let's dive into the swirling vortex of Bitcoin price predictions, M2 money supply, and the ever-watchful eyes of quant analysts. What's the real deal with these interconnected forces? The latest buzz is all about questioning established models and digging deeper into the data.

The M2-Bitcoin Correlation: Fact or Fiction?

For a while now, the idea that Bitcoin's price is closely tied to the global M2 money supply has been gaining traction. The argument is that as the money supply expands, so does Bitcoin's price. Sounds simple enough, right?

But hold your horses! Sina, a sharp-eyed quant analyst from 21st Capital, is throwing a wrench in the works. He's calling out this correlation as a classic case of data overfitting. According to Sina, manipulating the data to fit historical patterns doesn't guarantee future predictive accuracy. He argues that the Global M2 data is flawed, mixing data from countries with varying reporting speeds, thus creating a misleading impression of daily fluctuations in global liquidity.

In a June 24 video on X, Sina says, “This is a terrible failure of not understanding overfitting... What I’m seeing doesn’t even pass the first month of a first-year data analytics course.” Ouch!

Zooming Out: The Devil's in the Details

Sina points out that the seemingly perfect alignment between Bitcoin and Global M2 often falls apart when you zoom out or tweak the parameters. Minor adjustments in lead time or scale can lead to vastly different outcomes. “Let’s try a lead of 80 days. That doesn’t look good. What about 108? Ah, now the tops align—so let’s zoom in again and pretend it works,” he quips. It’s all about perspective, baby!

Bitcoin as the Leader, Not the Follower?

Here's another twist: what if Bitcoin isn't following liquidity but actually leading it? Sina suggests that in the last cycle, Bitcoin topped before liquidity did, potentially reversing the assumed cause-and-effect relationship. This is some food for thought!

Deviation and Market Dynamics

Adding another layer to the discussion, crypto analyst Colin has pointed out Bitcoin's price's deviation from the Global M2 money supply. While such deviations can raise eyebrows, Colin assures us that they're a normal part of the process and don't necessarily invalidate the broader trend.

Raoul Pal chimes in, suggesting that the Bitcoin price's correlation with the money supply indicates there's no need to panic about the current price action. According to Pal, if 89% of BTC's price action is explained by global liquidity, then almost all news and narrative are just noise.

The Bottom Line: Proceed with Caution

So, what's the takeaway from all this? While the M2 money supply might offer some directional insights, it's not a crystal ball. Quant analysts are reminding us to be wary of overfitting models and to consider the bigger picture. The market is complex, and no single indicator can predict Bitcoin's price with certainty.

Current Market Snapshot

As of now, Bitcoin is trading above $107,000, showing a 2.2% increase in the last 24 hours. BTC's dominance continues to rise, holding almost 66% of the total crypto market value.

Also, the FHFA Director William Pulte sharing on social media that borrowers would soon be able to take advantage of their crypto holdings for loan purposes, may also push bitcoin’s price higher.

What does it all mean? It's hard to say for sure. But one thing's clear: the world of Bitcoin is full of surprises.

Until next time, keep your wits about you, question everything, and remember: even the smartest analysts can't predict the future! Happy trading, y'all!