Introduction
I see a lot of posts regarding USA's money printing on the subreddit r/Bitcoin. I wanted to see for myself if the money printing in the USA affects the price of bitcoin. The data I need would be bitcoin's price in U$ and the M2 money supply of USA. M2 is a measure of the total money supply that includes all cash, checks and deposits. If you want to explore M2 any further, then check out "What is M2?".
Acquire and prepare the data
I got bitcoin's historical price data from https://coinmarketcap.com/. The historical data for M2 was not that easy but I was able to download it at https://fred.stlouisfed.org/series/M2SL. I wanted to make sure that I have the correct M2 money supply data so I compared it with data from two other sources :
https://tradingeconomics.com/united-states/money-supply-m2 and
https://www.ceicdata.com/en/indicator/united-states/money-supply-m2
With a less than 2% difference from the three sources in M2 monney supply I was confident that my data was fairly accurate. Please note the data is only up to 1 Feb 2021, where the price of 1 bitcoin is U$33,537.18, becasue that was the latest figures for the M2 data.
Analyze data and communicate results
The M2 data only had monthly figures so I had to allign the data for bitcoin in the same way. Also the M2 figures are in U$ billions and the bitcoin figures are in U$ so I created a secondary y axis(right side of the chart) for M2. Now we can plot the data.
From the chart we can see that :
- bitcoin's price(orange line) follows the M2 money supply(green) upwards;
- the Federal Reserve has printed a quarter of the entire money supply of the USA within just one year(2020 to 2021); and
- the spike in bitcoin's price at the start of 2021.
With a simple function in Excel from Naked Statistics by Charles Wheelan: Part 3 - Correlation, CORREL (M2 figures, bitcoin figures), we get a correlation of 83%. So it appears that the price of bitcoin and the M2 money are rather highly correlated. This suggests that increasing the M2 money supply i.e printing money, triggers an increase in the bitcoin price.
Max Keiser coined the phrase "Bitcoin has no top because fiat has no bottom". This means that the price of bitcoin can go to infinity because there is no limit to how much money the Federal Reserve of the USA can print.
