The global financial landscape is signaling a potential shift towards a more bullish environment for risk assets as 2026 approaches, driven by significant improvements in global liquidity. After a period of policy adjustments, major economies are increasingly providing a supportive tailwind that could reshape market dynamics.
Global Liquidity Reaches New Heights
Global M2 Supply, a key indicator of liquidity, has surged to unprecedented levels, now approaching $130 trillion. This remarkable expansion is predominantly fueled by China, which accounts for approximately 37% of the total, reaching USD 47.7 trillion. However, this liquidity growth is not uniform across the globe; while China leads, several other economies, including Japan, India, Argentina, Israel, and South Korea, are experiencing M2 contraction, highlighting a fragmented global monetary environment.
Policy Easing and Investor Caution
Major economies are actively engaging in liquidity provision, setting a supportive stage for risk assets. The U.S., for instance, has implemented a $40 billion Treasury plan aimed at injecting cash into the banking system and smoothing funding conditions. This, coupled with three consecutive rate cuts in the latter half of 2025 and the overall increase in global money supply, creates a macro setup that is overtly favorable for risk assets. Despite these strong macro tailwinds, investor sentiment remains cautious. The crypto market, represented by TOTAL, ended 2025 on a bearish note, down 21% for the quarter, keeping valuations well below late-Q3 peaks.
Potential for Rebound
The current disconnect between surging global liquidity and a cautious market presents an intriguing dynamic. While the immediate impact hasn't translated into widespread gains for risk assets, particularly in the crypto space, the continuous build-up of global money supply is a significant factor to monitor. This underlying liquidity growth could be laying the groundwork for a substantial rebound in 2026, making the trajectory of global money supply a critical metric for investors seeking future opportunities.
