Bitcoin and the Money Supply: What's the Real Story?

Someone dropped an interesting comment on one of my posts recently — something along the lines of: "The money supply grows about 8% a year. Your investments need to beat that or you're losing ground. That's why Bitcoin."

It's a fair point to raise, and it got me thinking. Let's unpack it — not to tell you what to do, but to understand the argument and where reality gets more complicated.

The Argument: Money Supply Keeps Growing

This part is true. Central banks — the Fed in the U.S., the ECB in Europe — expand the money supply over time. In the U.S., M2 (the measure that includes cash, checking deposits, and savings) has historically grown somewhere in the range of 6–7% annually, depending on the timeframe you look at.¹

The logic follows: if there are more dollars chasing roughly the same amount of goods, each dollar buys a little less. Purchasing power erodes. If your investments don't outpace that growth, you're treading water — or sinking.

Enter Bitcoin: The Fixed-Supply Counterargument

Bitcoin was designed differently. Its supply schedule is baked into the code: a hard cap of 21 million coins, ever.² New issuance gets cut in half roughly every four years (the "halving"), and eventually, the supply stops growing entirely.

The pitch is simple: if fiat currencies can be printed indefinitely but Bitcoin cannot, then holding an asset with fixed supply protects you from monetary debasement. No central bank can inflate it away.

Some people frame this as "digital gold" — decentralized, scarce, and outside the reach of government monetary policy. If fiat units grow while Bitcoin supply stays constant, the theory goes, Bitcoin should appreciate over time.

That's the theory.

The Reality Is More Complicated

Here's where I think it's worth slowing down a bit.

Bitcoin doesn't behave like an inflation hedge — at least not yet

If you look at the data, Bitcoin moves more like a risk asset than a store of value. It correlates more closely with tech stocks than with inflation indicators. When markets get nervous, Bitcoin tends to sell off alongside equities — not hold steady like you'd expect from a true hedge.

It's also experienced drawdowns of 50–80% multiple times.³ That's not volatility you typically associate with wealth preservation.

Scarcity alone doesn't guarantee stability

A fixed supply is one thing. Stable purchasing power is another. A scarce asset can still skyrocket, crash, or drift sideways based on sentiment, regulation, liquidity, or technological shifts. Scarcity is a feature of the design — but it doesn't automatically make something a reliable store of value.

There are other ways to address inflation

Historically, diversified portfolios across equities, real assets, and other asset classes have provided meaningful protection against inflation. Broad equity markets have substantially outpaced inflation over long time horizons. That doesn't mean Bitcoin has no role — it means it's not the only tool in the box.

So What Do I Make of It?

I'm not here to tell you whether to own Bitcoin. That's not my place — and frankly, every situation is different.

But I do think it's worth understanding both sides clearly:

The case for: Bitcoin has a fixed supply, it's decentralized, and no government can expand it. For people worried about monetary policy and long-term purchasing power, that's a compelling feature.

The case for caution: Bitcoin is extremely volatile, hasn't consistently tracked inflation, and behaves more like a speculative asset than a traditional hedge. The theory is elegant; the real-world behavior is messier.

Different people use Bitcoin for different reasons — speculation, alternative asset exposure, an asymmetric bet on adoption. None of those are wrong. But understanding the difference between the narrative and the actual behavior is important.

A Word on Regulation — and Why I Can't Advise Here

There's another layer to this that's worth naming: Bitcoin exists in a regulatory gray zone. Unlike stocks, bonds, or even traditional commodities, cryptocurrencies don't have a clear, settled regulatory framework in the U.S. The SEC, CFTC, and other agencies are still working out who oversees what — and the rules are evolving in real time.

That uncertainty creates risk. Not just price risk, but structural risk — questions about custody, exchange reliability, tax treatment, and what happens if regulations shift significantly. We've already seen major exchanges collapse and billions disappear. The infrastructure is maturing, but it's not where traditional markets are.

This is also why, as someone affiliated with Raymond James, I'm not in a position to advise on whether you should or shouldn't own Bitcoin. It falls outside the scope of what I can recommend or manage within a traditional advisory relationship. That's not a judgment on the asset itself — it's simply the reality of how regulated financial advice works right now.

If crypto is something you're exploring, it's worth doing your homework, understanding the risks, and potentially working with specialists who focus on that space.

The Bigger Picture

Monetary debasement is a real concern. Thinking critically about how your wealth holds up over time is smart. But there's no single asset that solves that problem in isolation — and anything that promises certainty probably deserves a second look.

If this topic resonates with you — if you're thinking about how to position your portfolio against inflation, currency risk, or long-term purchasing power — that's exactly the kind of conversation worth having with a financial advisor who can look at your whole picture.

As always, stay curious — and stay grounded.

Sources

¹ Federal Reserve Bank of St. Louis, M2 Money Stock [M2SL], FRED Economic Data. Historical data available from 1959-present shows M2 growth varying by period, with long-term averages in the 6-7% range during normal economic conditions. Available at: fred.stlouisfed.org/series/M2SL

² Nakamoto, Satoshi. "Bitcoin: A Peer-to-Peer Electronic Cash System." October 31, 2008. The 21 million cap is embedded in Bitcoin's source code through the halving mechanism (block rewards cut in half every 210,000 blocks, starting at 50 BTC). Available at: bitcoin.org/bitcoin.pdf

³ iShares by BlackRock, "Bitcoin Volatility Guide: Trends & Insights for Investors." States: "Since 2014, bitcoin has experienced four drawdowns in excess of 50%. While one of these was followed by a quick, six-month recovery, the three largest drawdowns averaged an approximately 80% decline." Available at: ishares.com/us/insights/bitcoin-volatility-trends

Note: Past performance does not guarantee future results.

Any opinions are those of Katherine Reisfeld and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. Bitcoin issuers are not registered with the SEC, and the bitcoin marketplace is currently unregulated. Bitcoin and other cryptocurrencies are a very speculative investment and involves a high degree of risk. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.