Crypto Markets Analysis: Money Supply Growth Is Falling, an Encouraging Sign for Fed Progress

The two largest cryptocurrencies by market capitalization traded flat Tuesday, while hovering well above their most recent support lines.

AccessTimeIconNov 1, 2022 at 8:00 p.m. UTC
Updated Nov 1, 2022 at 8:15 p.m. UTC

Crypto observers hoping for a more dovish turn in monetary policy may look optimistically at a percentage decline in the M2 money supply growth from a year ago.

The parabolic increase in U.S. money supply during 2020 is largely behind the current inflationary environment. The reduced supply growth could be evidence that recent Federal Reserve measures are working.

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M2 Percent Change (FRED Database)

Bitcoin and ether were trading sideways on Tuesday, albeit slightly to the green, a day ahead of the Federal Open Market Committee’s latest interest rate decision.

Investors widely expect a fourth consecutive and robust 75 basis point hike, although they have become increasingly hopeful the Fed will increase the rate more modestly early next year or even in December amid signs the economy is not likely to head into a harsh recession.

Some traders speculate that Fed officials on Wednesday might signal they have made enough progress in their campaign to bring down inflation that they could downshift the pace of rate increases as soon as December.

However, JOLTs (Job Openings and Labor Turnover Survey) data, showed an unexpected increase in job openings in September. Excessive unfilled job openings can often have an inflationary impact because organizations increase wages to attract candidates.

In early October, Chicago Fed President Charles Evans said that it would be appropriate to pause the lending rate that the central bank charges other banks at slightly more than 4.5% by March 2023. The Fed is expected to increase the rate to 3.75%-4.0% on Wednesday. At the start of the year, the rate was 0.25%.

Bitcoin has slowed its pace of acceleration ahead of the rate decision. Its price has settled just above the psychologically important $20,000 mark, after last week’s 8% increase.

Prices have declined the past two days, but reduced volume and a compressed trading range signal reluctance more than it does a bearish shift.

A similar pattern is in place for ETH, although the second-largest cryptocurrency by market value traded slightly higher on Tuesday. ETH, now trading above $1,500, has largely outperformed BTC recently, with the ETH/BTC currency pair rising 14% since Oct. 20.

On-chain data shows an increase in the BTC mining hashrate, which bears monitoring if BTC’s price contracts. The hashrate refers to the amount of computing power required to process bitcoin transactions, so higher rates in conjunction with lower prices lead to compressed margins for bitcoin miners. As those margins contract, miners may have to sell BTC to stay afloat.

Currently, the BTC balance for miners has started to increase, which should be a positive sign.

Funding rates within perpetual futures contracts should also be monitored because they can indicate overall investor sentiment. Bullishness appears to be increasing, as funding rates were positive for October, with the exception of four days.

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Funding Rates (Glassnode)


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Glenn C Williams Jr, CMT is a Crypto Markets Analyst with an initial background in traditional finance. His experience includes research and analysis of individual cryptocurrencies, defi protocols, and crypto-based funds. He owns BTC, ETH, UNI, DOT, MATIC, and AVAX

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