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

This paper studies the existence and nature of the long run equilibrium relationship between US M2 money supply (M2SL) and the price of Bitcoin (BTC) spanning between January 2015 to April 2025. Utilizing a log-log model to focus on elasticity, this study utilizes a robust econometric methodology, including Augmented Dickey-Fuller (ADF) and Zivot-Andrews unit root tests, Engle-Granger and Johansen cointegration tests, and a Vector Error Correction Model (VECM). The cointegration tests from both variables provide strong evidence of a single, stable long-run relationship between the two series. 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. These results leads us that Bitcoin performs as a highly elastic asset relative to monetary expansion (M2), providing quantitative support for its role as a liquidity-driven asset and offering significant implications for investors and other stakeholders regarding dynamics of monetary policy and digital assets.