Everyone's talking about Ethereum hitting $8000. Eric Trump’s all in, Ted Pillows is calling it, and the buzz is at a White Walkers Invasion level high. The bottom line? The correlation between Ethereum’s price and the M2 money supply. Are we overestimating the value of a 30-second correlation? At what cost—are we kicking the elephants out of the room to pay attention to this one shiny new metric? I think so.
Correlation Does Not Equal Causation
Indeed, the U.S. M2 money supply has exploded due to the pandemic response, reaching an all-time high of $22.02 trillion. Yes, Ethereum has rallied significantly since April. And yes, Spot Ethereum ETFs are experiencing record setting inflows. Even Novogratz is bullish — on ETH, predicting that Ethereum will soon outstrip Bitcoin. We know it’s easy to get caught up in the excitement. Well hold on a second there partner.
The historical relationship between Ethereum and M2 is impossible to miss at certain points. Correlations break down. Remember 2022? M2 was still elevated, but Ethereum tanked. Why? Because correlations aren't crystal balls. They're rearview mirrors. They only tell you what happened, not what’s going to happen.
Quick note incoming on the recent ETH ETF inflows – superlative doesn’t do them justice. Looks like Fidelity and BlackRock are leading the charge! BlackRock’s ETF reaching $10 billion in a year is an extraordinary achievement by any measure. Looking just at M2 is like trying to sail a boat using only one instrument. It’s not enough to have a speedometer, you need a compass, a sextant, and a weather report.
We have to begin to ask ourselves, is this simply a self-fulfilling prophecy? So are we seeing a price increase precisely because everyone expects this to happen? This expectation does appear to be a creation of the M2 narrative. That’s not a very reassuring basis for a long-term investment.
What About Other Economic Indicators?
M2 isn't the only game in town. What about inflation? Interest rates? GDP growth? Unemployment figures? These factors, among many others, serve as critical levers to create the competitive economic landscape that is increasingly necessary to secure new investment.
Think about it: if inflation remains stubbornly high, the Federal Reserve might be forced to raise interest rates further. Speculation Higher interest rates generally make riskier assets, such as cryptocurrencies, less attractive. As a result, investors may move their capital to safer assets such as bonds or dividend-paying stocks. That would more than negate the good from M2 growth.
We can't ignore the broader macroeconomic environment. The narrative that “M2 go up, ETH go up” is dangerously simplistic. It ignores the reality that economic forces create destructive asset prices.
Ethereum's Real Risks And Challenges
Let's be brutally honest: Ethereum isn't without its risks. Regulatory uncertainty looms large. With increased scrutiny from the SEC or other regulatory watchdogs, this nascent innovation may be choked off and would certainly be hampered in their growth.
Then there's the competition. Other blockchain platforms have been competing to seek out that dominance with faster transaction speeds, lower transaction fees, or more sophisticated capabilities. Ethereum must continue to be forward-looking in order to remain the world’s most popular smart contract platform.
Don’t even get us started on scalability or security. Though the Merge was a historic accomplishment, Ethereum has much more work to do in order to scale up as demand continues to increase. These security vulnerabilities are an ever-present danger. In fact, several high profile hacks and exploits in the crypto space have made clear this fact.
These aren't theoretical concerns. To be clear, these are actual challenges that could scupper the $8000 Ethereum call.
| Risk | Potential Impact |
|---|---|
| Regulation | Reduced adoption, limited innovation, increased compliance costs |
| Competition | Loss of market share, decreased developer activity, slower growth |
| Scalability | Congestion, high fees, poor user experience |
| Security | Loss of funds, reputational damage, erosion of trust |
And yeah, maybe Ethereum will go to $8000 and I’ll look like a fool. I'm saying we need to be realistic. Avoid getting caught up in the hype to the point where you ignore the risks. Do your own research. Consider all the factors. And don’t go all-in on the M2 either.
This current bullish sentiment is indeed intoxicating and supported by strong institutional investment as well as global liquidity. Markets go through phases and sentiment can turn unexpectedly in a heartbeat.
Long-term, putting money into Ethereum is a wager on where decentralized computing can take us. It’s a gamble on the ongoing expansion of the global blockchain ecosystem. It’s a bet that must be made with eyes wide open, not with those rose-colored glasses. The M2 money supply trend is only part of the story. Take a look and make sure it’s not the only one you read.
Ultimately, investing in Ethereum is a bet on the future of decentralized computing. It's a bet on the continued growth of the blockchain ecosystem. But it's a bet that should be made with your eyes wide open, not with rose-tinted glasses. The M2 money supply is just one piece of the puzzle. Don't let it be the only piece you see.
