The M2-Bitcoin Elasticity: A Cointegration Analysis (2015–2025)

Abstract

This paper studies the existence of the long-run equilibrium relationship between the US M2 money supply (M2SL) and the price of Bitcoin (BTC) spanning January 2015 to April 2025. Utilizing a log-log model to focus on elasticity, this study employs a robust econometric methodology to examine the relationship between the US M2 money supply and Bitcoin (BTC) prices. The empirical findings confirm that the natural logarithms of M2 and BTC are integrated of order one, denoted as I (1). The Johansen test shows a long-run elasticity estimate of 2.65, suggesting that a 1% increase in the M2 money supply is associated with a 2.65% increase in the price of Bitcoin. The VECM analysis validates this long-run equilibrium, with a statistically significant error correction term (λ’ = -0.12), indicating that 12% of any deviation from the long-run path is corrected monthly. The cointegration tests for both variables provide strong evidence of a stable, long-run relationship. These results lead us to conclude that Bitcoin performs as a highly elastic asset with respect to changes in the M2 money supply.