Liquidity Is Surging And May Find Its Way To Scarce Assets Like Bitcoin
Liquidity is absolutely surging- but where is it actually coming from?
The Surge
Last week focused on the Yen Carry Trade and noted it as being one of the many marginal drivers of liquidity. With that clearly in the rear-view mirror, as yet another Yen intervention has occurred since that article was published, we need to confront a critical reality:
Dollar liquidity is absolutely soaring.
One of the primary reasons I became more cautious in late-summer/early-fall of last year was due to liquidity very clearly rolling over. Not only was the repo market in increasingly severe distress, the broad money supply was decelerating.
Nominally, M2 was still growing (and almost always does), but that’s the wrong metric – the right metric is the rate of change of the money supply, and that started to roll over in the late spring of 2025.
M2 (broad money) supply, 6-month rate of change
But something notable has been happening recently: we’ve been seeing a huge surge of liquidity in the financial system.
The stock market is vertical. Bitcoin is 30% off its recent lows. But where it’s coming from is curious.
Let’s look at broad money first. M2, or the broad money supply, is a measure of the total amount of money in an economy, including physical cash, checkable deposits, and easily convertible ‘near money’.
Zooming in a bit and looking at just the past 5 years (and a shorter rate of change timeframe), we can see there was definitely a surge of this “broad money” in the past few months.
M2 Money and 3-month rate of change.
Remember, while everyone focuses on the Fed’s money printing, a far larger driver (in absolute terms) is …
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