Charts showing China‘s M1 money supply surging over 65% have led to wide speculation on Crypto Twitter and market participants that new liquidity is being injected.
New liquidity injections tend to lead to a trickle-down of money entering risk assets and investment markets affecting stocks and crypto in particular.
Recent reports suggest that China‘s M1 money supply chart has been misinterpreted and that the surge is due to a reclassification of how the metric is being calculated and not a signifier of new liquidity.
What is China’s M1 money supply?
China’s M1 money supply accounts for the total amount of liquid money flowing around in China’s huge economy. A good comparison would be the United States M2 money supply.
The chart represents funds deposited into checking accounts and on-demand deposits along with physical fiat currency such as the Chinese Yuan, China’s national currency.
Investors, economic analysts, and traders use the M1 money supply to get a picture of what’s going on with liquidity and how much liquidity may impact global or national assets.
High liquidity on the charts indicates that there is more money entering circulation which means market analysis can expect an increase in consumer spending or investments to be pushed. Therefore, low liquidity means there is less money being circulated and general spending will be reduced or stay in line.
Liquidity impacts how crypto markets, stocks, real estate, and business products move, with investors benign able to use M1 as an indicator of how the market could react in certain situations or how healthy a market is.
Why did China’s M1 money supply go up?
Early this year, China’s M1 money supply surged around 67.59% from 65.6 trillion yuan to over 112 trillion leading to speculations that new money, and therefore liquidity, had entered China’s economy and finances.
Such a strong jump would influence global economics and bring about a surge in global markets such as stocks and assets like cryptocurrencies including Bitcoin.
Speculations that China’s liquidity increased to over 100 trillion have been met with skepticism as financial analysts have referred to announcements made by the Chinese government and The People’s Bank of China (PBOC).
According to China Daily, the People’s Bank of China has included prepaid funds from nonbank payment institutions and residential demand deposits into the M1 money supply data. The inclusions were reportedly announced in December 2024 and they would come into effect from January 2025.
According to the report, the M1 supply surge was due to China reclassifying how the money supply will be measured in the future, not due to new liquidity injections. China has in fact adjusted its money supply data to include new financial properties that were previously excluded from the metrics.
How will China and US money supply affect crypto markets?
Although various sources indicate that China’s national bank has simply changed the M1’s data, the chart’s surge may have already influenced misinformation in the crypto market.
There have been reports of increased trading volume for Bitcoin and Ethereum following China’s M1 surge, possibly fueled by misinformation about the chart.
Looking at the United States, the United States Money Supply M2 has been growing since late 2024 but seems to have stalled at 21.56 trillion between January – February 2025.
The M2 supply includes M1 physical currencies, liquid deposits, and demand deposits aligned with retail money market fund shares, saving deposits, and time deposits.
With President Trump’s recent pro-crypto executive orders and the coming foundations of a US Crypto Reserve, money supply and liquidity may have only a small impact on the direction in which the markets will be moving in.
