Key Takeaways
- Joao Wedson argues that central bank balance sheets relative to Global M2 offer more insight into Bitcoin’s liquidity backdrop than money supply growth alone.
- The ratio falls when broad money expands faster than central bank assets, even as M2 reaches new highs.
- The ratio provides context, but it neither tracks money flowing into Bitcoin nor establishes a reliable rally signal.
A growing global money supply does not automatically translate into a Bitcoin rally. That is the argument from Alphractal founder Joao Wedson, who says investors overlooking central bank balance sheets may be misreading the liquidity picture.
His analysis compares the combined balance sheets of tracked central banks with global M2, rather than treating broad money growth as a standalone bullish signal.
According to Wedson, Bitcoin has historically benefited when central bank balance sheets strengthened relative to the money supply.
Since 2021, he argues, their relative weakness has helped explain why expanding monetary aggregates have not consistently delivered stronger cryptocurrency markets.
The Ratio Behind Wedson’s Liquidity Argument
The calculation divides the combined balance sheets of selected central banks by the global M2 money supply.
A rising ratio means that central bank assets are increasing faster than broad money, or that broad money is declining more slowly. A falling ratio indicates the opposite: broad money is outpacing the central bank’s balance sheet.
That distinction changes how investors interpret record monetary totals.
If global M2 grows while central bank assets remain unchanged, the ratio falls even though the headline money supply reaches new highs.
Wedson’s thesis is that this relative measure captures an important dimension of the monetary backdrop for Bitcoin.
“Global M2 can keep rising indefinitely, but what matters most is the relative strength of central bank balance sheets,” he wrote.
However, the ratio does not directly measure the amount of money entering cryptocurrency exchanges, investment funds, or Bitcoin wallets. It compares two monetary stocks, rather than tracking actual investment flows.
More Money Does Not Mean More Bitcoin Buying
Official US figures illustrate why broad money and central bank liquidity should be examined separately.
The Federal Reserve’s Sept. 22 release showed seasonally adjusted M2 at approximately $23.34 trillion in August 2026, up from $22.09 trillion a year earlier, a rise of roughly 5.7%.
Over the same period, bank reserve balances fell from approximately $3.28 trillion to $2.94 trillion. These are US figures, rather than a measurement of global M2.
M2 includes currency and deposits, alongside certain other relatively liquid holdings. Its expansion does not require a matching increase in central bank assets.
Commercial banks can create deposits when they extend loans, increasing broad money through private credit creation. The Bank of England has explained that this process differs from the familiar idea that banks simply multiply central bank reserves into lending.
Consequently, growing deposits can coexist with a less supportive environment for speculative investment.
Money held by households or companies may support spending, working capital, or savings instead of purchases of Bitcoin. The existence of additional money does not establish its destination or the owners’ willingness to take risks.
Balance Sheets Add Context, Not a Complete Explanation
Wedson’s argument challenges a popular shortcut: assuming Bitcoin must eventually follow every increase in global M2.
Yet central bank balance sheet totals also have limitations.
The composition of liabilities matters. When funds move into the US Treasury’s account at the Fed, bank reserves can decline without any change in the central bank’s total assets. Treasury spending can reverse that movement.
Global comparisons introduce further complications, including differences in national currency definitions, publication schedules, and exchange rates when figures are converted to a common currency.
Most importantly, a historical relationship does not establish that this ratio causes Bitcoin’s price movements or outweighs every other influence.
The useful takeaway is therefore narrower than the headline suggests: record broad money supplies are insufficient evidence of an approaching rally.
Understanding Bitcoin’s monetary backdrop requires examining how money is created, where liquidity sits, and whether investors actually deploy it into risk.
The information provided in this article is for informational purposes only. It is not intended to be, nor should it be construed as, financial advice. We do not make any warranties regarding the completeness, reliability, or accuracy of this information. All investments involve risk, and past performance does not guarantee future results. We recommend consulting a financial advisor before making any investment decisions.
Giuseppe Ciccomascolo began his career as an investigative journalist in Italy, where he contributed to both local and national newspapers, focusing on various financial sectors.
Upon relocating to London, he worked as an analyst for Fitch's CapitalStructure and later as a Senior Reporter for Alliance News. In 2017, Giuseppe transitioned to covering cryptocurrency-related news, producing documentaries and articles on Bitcoin and other emerging digital currencies. He also played a pivotal role in establishing the academy for a cryptocurrency exchange website. Crypto remained his primary area of interest throughout his tenure as a writer for ThirdFloor.
