Bitcoin’s long-standing relationship with global liquidity is showing signs of strain, as recent market behavior diverges from the playbook that defined earlier cycles. For years, expanding global M2 money supply served as a reliable signal for capital rotation into risk assets, with Bitcoin capturing a disproportionate share of inflows. That pattern powered the 2020–2021 rally and shaped expectations throughout 2024.
The current cycle tells a different story.
By March 2026, US M2 reached approximately $22.6 trillion, marking a 4.6% year-over-year increase. Under previous conditions, such an expansion would have supported sustained upside in the crypto markets. Instead, Bitcoin struggled to hold above $76,000 during the first quarter, a level identified as key resistance during CryptoQuant’s Unbiased podcast by Real Vision’s chief crypto analyst Jamie Coutts.
The divergence points to a deeper shift in how liquidity moves through the financial system.
A changing transmission mechanism
Coutts argued that liquidity itself no longer guarantees asset inflation. The structure behind that liquidity now matters more than its size.
In the post-2008 environment, central bank quantitative easing injected reserves directly into financial markets. That process created excess capital that flowed into equities, credit, and eventually crypto. Today’s system operates differently. Treasury issuance, reserve management, and bank credit creation now shape liquidity distribution.
According to FRED data, US public debt reached over $38.5 trillion by the end of 2025, rising 6.3% year over year. This pace exceeds M2 growth, pushing the debt-to-money ratio to approximately 1.70x. The imbalance introduces pressure on financial conditions, even as headline liquidity expands.
Treasury activity adds another layer. Borrowing estimates included $574 billion in net issuance for the first quarter of 2026 and $109 billion for the second quarter while maintaining a cash balance above $1 trillion. Funds held in the Treasury General Account effectively remove liquidity from the banking system.
Federal Reserve data reinforces the tightening trend. Reserve balances declined by roughly $355 billion year over year to $2.9 trillion as of April. The result creates what market participants describe as a “plumbing problem,” where liquidity exists on paper but struggles to reach risk assets.
Futures-driven rally raises fragility concerns
Bitcoin’s April performance reflects this tension between liquidity and actual demand.
The asset gained around 20% during the month, rising from $66,000 to a peak near $79,000. Data from CryptoQuant shows that the rally relied entirely on perpetual futures demand. Spot demand, which tracks real buying activity, remained in contraction throughout the period.
CryptoQuant stated:
"The divergence between rising price and contracting spot demand is one of the clearest on-chain signals that price gains are speculative rather than structural."
That structure mirrors early 2022 conditions, when a similar divergence preceded a prolonged market decline. The firm’s Bull Score Index dropped from 50 to 40 during April, returning to bearish territory despite the price increase.
Bitcoin has already pulled back toward the mid-$70,000 range, a move that aligns with historical patterns tied to futures-led rallies.
Perp demand is rising. Spot demand is still contracting.
— CryptoQuant.com (@cryptoquant_com) April 30, 2026
That exact setup appeared in 2022 and preceded the next leg down.
It doesn’t guarantee the same outcome, but structurally, this is a bearish demand signal. pic.twitter.com/jE1Ld6koaZ
Institutional flows and macro pressures collide
Additional signals point to weakening conviction among institutional participants. SoSoValue data shows US-listed spot Bitcoin ETFs recorded $490 million in net outflows over three consecutive days, reversing part of the $3.3 billion inflows seen since early March.
Macroeconomic conditions continue to complicate the outlook. US GDP growth came in at 2% for the first quarter, below expectations. Rising oil prices and Treasury yields signal persistent inflation pressure. Brent crude reached $126, while five-year Treasury yields climbed above 4%.
These factors contribute to a risk-off environment that limits Bitcoin’s ability to sustain momentum near resistance levels.
Corporate accumulation has offered partial support. Strategy, led by Michael Saylor, acquired 56,235 BTC in April. Such purchases are a key driver behind recent price strength. However, reliance on concentrated buyers introduces additional fragility if accumulation slows.
Gold demand highlights institutional preference
While Bitcoin struggles to convert liquidity into sustained gains, gold demand has surged. According to the World Gold Council, central banks purchased 244 tonnes of gold in the first quarter, pushing total demand to 1,231 tonnes valued at $193 billion.
The trend suggests institutional hedging against sovereign debt risks. Unlike Bitcoin, gold remains a reserve asset within the existing financial system, which makes it more accessible for central banks.
The International Monetary Fund projects global public debt will reach 100% of GDP by 2029. The Congressional Budget Office expects US federal debt held by the public to rise from 101% to 120% of GDP by 2036. These projections reinforce long-term concerns about debt sustainability and capital allocation.
The outlook for Bitcoin now depends on how these structural forces evolve.
In a more supportive scenario, inflation eases, Treasury cash balances decline, and reserve levels recover. That shift would improve liquidity transmission and allow Bitcoin to reprice higher. Coutts placed the probability that the cycle low has already formed above 50%, with $60,000 acting as a potential floor.
A less favorable outcome centers on persistent debt issuance and sticky inflation. Under those conditions, the Federal Reserve faces constraints on easing policy. Bitcoin would likely behave as a high-risk asset, sensitive to funding conditions and periodic deleveraging.
S&P Global’s latest flash PMI points to growth running near a 1% annualized pace. Such a fragile environment leaves little margin for shocks.
For now, the breakdown in the M2-Bitcoin relationship signals a market in transition. Liquidity alone no longer drives price action. The path of reserves, debt, and real demand now defines the cycle.
Tanya Petrusenko
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