Crypto Market Waver as Global M2 Stagnates—Can Stablecoins Save the Day?

The crypto market is in a state of flux, with low liquidity, falling capital inflows, and heightened investor fear dominating the narrative.

While trading activity has plummeted, the rising supply of stablecoins and the role of global M2 money supply offer a complex but critical backdrop to the market’s next moves.

Bitcoin and Ethereum Trading Volume Hits Historic Lows

The crypto market has seen trading volumes drop to levels not witnessed since before the U.S. elections in 2024.

According to Santiment data, trading volume across major sectors—including memecoins, AI tokens, and Layer 1 protocols—has nosedived by 56.7%, falling from $134 billion in November 2024 to $58 billion in January 2025.

This sharp decline reflects a growing investor hesitancy to engage with digital assets. Analysts describe this phenomenon as “trading paralysis,” with participants waiting on the sidelines for clearer market signals.

Diverging trends in Bitcoin and Ethereum exchange flows add another layer to the story. Glassnode data reveals that Bitcoin has seen consistent outflows since December 2024, averaging 80,000 BTC withdrawn monthly.

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This trend indicates strong HODLing behavior but raises concerns over diminishing liquidity on exchanges.

In contrast, Ethereum has shown mixed signals. While January 2025 recorded net outflows of 400,000 ETH, significant accumulation phases occurred earlier, with inflows peaking at 700,000 ETH in October 2024.

These patterns highlight differing strategies among institutional and retail investors.

Global M2 Money Supply and Its Role in Crypto Liquidity

Global M2 money supply—a measure of physical cash, money in bank accounts, and retail money market funds—is a critical factor influencing Bitcoin and broader crypto markets.

Raoul Pal, the CEO of Real Vision, has discussed the connection between the global M2 money supply and Bitcoin.

Historically, Bitcoin has closely mirrored changes in M2 with a 70-day lag according to Pal.

He explains that when M2 expands, it signals increased liquidity in the global financial system, often fueling risk-on investments like cryptocurrencies.

However, Pal points out that the M2 growth has stalled, aligning with the crypto market’s current liquidity crunch.

If the correlation holds, this could suggest that Bitcoin may experience short-term price pressure.

Pal further suggests that if M2 begins to rise again in the latter half of 2025, it could provide the liquidity needed to propel Bitcoin’s price upward.

This correlation underscores the broader economic environment’s impact on crypto.

With central banks like the Federal Reserve maintaining tight monetary policies, reduced M2 growth restricts the flow of capital into high-risk assets, including Bitcoin and Ethereum.

Stablecoins: A $48 Billion Opportunity

Despite the liquidity squeeze, stablecoins offer a beacon of hope. The total stablecoin supply has surged to $48 billion USDT equivalent, tripling from $16 billion in March 2024.

USDT dominates this growth, increasing from 16 billion to 32 billion, while USDC has held steady at 4–5 billion.

Stablecoin reserves represent untapped potential, often likened to “dry powder” waiting for market conditions to improve.

This accumulation could provide the fuel needed for a market rebound, particularly if broader economic conditions shift to favor risk assets.

Market realized value—a metric tracking capital inflows—has seen a dramatic fall.

From a peak of $125 billion in October-November 2024, it has dropped to $58 billion, mirroring the decline in trading volume.

This steep decline reflects waning investor confidence and diminished risk appetite.

Macroeconomic uncertainty, coupled with reduced M2 growth, has exacerbated the issue, creating a challenging environment for crypto markets.

Between Liquidity Constraints and Recovery Potential

The interplay between M2 money supply, stablecoin reserves, and crypto market activity paints a mixed picture.

On the one hand, the lack of new liquidity flowing into markets has stifled growth, leaving investors cautious.

On the other hand, the $48 billion stablecoin supply represents significant potential energy that could be deployed if sentiment shifts.

Historically, periods of low liquidity and fear have often preceded major market recoveries.

Should global M2 growth resume—driven by economic stimulus or central bank interventions—cryptocurrencies like Bitcoin and Ethereum may see renewed inflows.

Until then, stablecoins remain the wild card, holding the power to reignite activity in a market.