According to a report by Coindesk, a U.S. financial media outlet, a new perspective is needed to evaluate risk assets such as Bitcoin and the S&P 500. The report points out that traditional price charts alone may not provide an accurate picture of their true value.In particular, attention is focused on the impact that growth in the M2 money supply—an indicator of the total amount of currency in circulation throughout the economy, including cash and deposits—has on asset prices. This article delves into how these assets appear when the expansion of the money supply is taken into account, and what that means for investors.A Coindesk article emphasizes that valuations shaped by the growth of the M2 money supply indicate a concerning trend for risk assets. This suggests the importance of evaluating more intrinsic value without being misled by mere price fluctuations.In this article, we will explain the concept of “money supply adjustment” in detail and conduct a multifaceted analysis of the current state of Bitcoin and the S&P 500. We hope this will help our readers gain a more sound perspective on asset valuation.
What Price Charts Alone Cannot Reveal
We frequently encounter price charts for various assets in our daily lives. However, the figures shown on these charts do not necessarily reflect the “real value” of those assets. In particular, during periods when the money supply in financial markets is expanding, nominal price increases may not correspond to increases in real value.
Coindesk, a U.S. financial media outlet, has sounded the alarm on this point. The outlet points out that adjusting for the M2 money supply—an indicator of the total amount of currency circulating in the economy, including cash and deposits—is essential when evaluating risk assets such as Bitcoin and the S&P 500 (a major U.S. stock index).
Price charts serve as a mirror reflecting market supply and demand. However, failing to consider the underlying changes in the money supply carries the risk of leading to erroneous judgments.
What Is the M2 Money Supply?
The M2 money supply is an indicator that measures the total amount of money circulating throughout the economy. Specifically, it includes cash, deposits, and quasi-money (such as time deposits). When central banks implement monetary policy—particularly quantitative easing—the M2 money supply tends to increase.
An increase in the money supply generally leads to inflationary pressure (rising prices). Furthermore, as ample funds flood the market, investment in risky assets—such as stocks, real estate, and crypto assets—can become more active, which may drive up their prices.
However, it is important to determine whether these price increases stem from fundamental improvements in value—such as improved corporate performance or technological innovation—or are simply the result of an increase in the money supply.
Impact on the Valuation of Risk Assets
An increase in the M2 money supply has the effect of raising the nominal prices of risky assets. This is because the abundance of funds in the market seeks investment opportunities and flows into various assets. However, this rise in nominal prices does not necessarily imply an improvement in the purchasing power or real value of the assets.
A Coindesk article suggests that, when valuations are adjusted for the money supply, risk assets are showing a “trending of concern.” In other words, because the value of money is declining relative to these assets, the same nominal price may carry less purchasing power than it did in the past.
This perspective offers a crucial insight for investors assessing the true value of assets. Simply because prices have risen does not necessarily mean this is a cause for unqualified celebration.
The Real Value of Bitcoin
Bitcoin is sometimes referred to as “digital gold,” and it is often expected to serve as a hedge against inflation (preventing the erosion of asset value due to inflation). However, what does its real value look like when adjusted for the M2 money supply?
An analysis by Coindesk suggests that Bitcoin, too, may be affected by the expansion of the money supply. While Bitcoin has seen a significant nominal price increase, when the expansion of the money supply is taken into account, it is possible that the magnitude of that increase is overestimated.
Bitcoin’s scarcity—the fact that its total supply is capped at 21 million coins—is a key factor underpinning its value. However, as the total amount of money in the market increases, the relative valuation of that scarcity may also change.
The Real Value of the S&P 500
The S&P 500 is a representative indicator of the health of the U.S. economy. Many investors closely monitor the S&P 500’s performance and use it as a benchmark for long-term wealth accumulation. However, the impact of the M2 money supply cannot be ignored here either.
Corporate earnings growth and innovation are the fundamental drivers of rising stock prices. On the other hand, the injection of funds into the market through monetary easing is also a major factor pushing stock prices higher. A Coindesk article points out that the influence of the latter may be strongly reflected in the valuation of the S&P 500.
The fact that the S&P 500’s valuation, adjusted for the money supply, shows a “trending of concern” suggests that market liquidity—the ease with which funds can move—is driving stock prices to a greater extent than the intrinsic growth in corporate value. Investors need to analyze this point objectively.
Perspectives Investors Should Consider
This observation by Coindesk underscores the importance for investors to adopt a more multifaceted perspective. Understanding not only price charts but also macroeconomic trends—particularly changes in the money supply—is essential for making wise investment decisions.
Recognizing the difference between an asset’s “nominal price” and its “real value” is the first step toward preserving wealth. We must always be mindful of how inflation and increases in the money supply affect our assets.
Furthermore, rather than concentrating excessively on a specific asset class, managing risk through diversification—investing in multiple different assets—is particularly important in this environment.
The Importance of Careful Asset Valuation
Financial markets are constantly fluctuating, driven by a complex interplay of factors. Trends in the M2 money supply are one of the most important factors among them. We should strive to grasp the big picture at all times, rather than becoming fixated on a single indicator or piece of information.
This Coindesk article offered a new perspective on the valuation of major risk assets such as Bitcoin and the S&P 500. It demonstrates that, beyond the speculative aspects, a calm and objective analysis is required to discern their intrinsic value.
When making investment decisions, it is paramount to maintain a cautious approach at all times and act based on your own judgment, informed by a diverse range of information.
[Source: Original Article]
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