In a recent one analysisJames Coutts, Chief Crypto Analyst at Realvision, flagged a potential bullish turn in Bitcoin’s near future, attributing the predicted change to shifts in global liquidity measures, particularly the Global Money Supply (M2) index, which is widely seen as the main price catalyst. Coutts detailed this expectation in a thread on X, where he explored the relationship between key economic indicators and Bitcoin price cycles.
Global money supply and its correlation with Bitcoin
Coutts’ analysis starts with the M2 monetary aggregates, which consist of cash, check deposits, and easily convertible money. He tracks these aggregates of the twelve largest economies, all adjusted to the USD. This measure, he suggests, is critical to understanding liquidity flows within the global fiat, credit-based financial system. According to Coutts, “the money supply often moves in one direction, with significant declines like the one in 2022 being rare and usually short-lived.”
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Currently, global M2 is neutral, but Coutts predicts impending changes: “There is a sea of red on my macro and liquidity dashboard, but signs are showing that this is about to change. Global M2 holds the key to the next leg of the cycle due to its high correlation with $BTC bull cycles.”
The rate at which the M2 money supply changes is more important than its nominal value. Coutts noted: “The chart confirms what our MSI performance chart suggests: Bitcoin usually moves with shifts in M2 momentum.” He explained that despite the MSI global money supply indicator being in an uptrend, momentum remains sluggish and maintains a neutral MSI. A shift to a bullish MSI signal will require an increase in momentum, which will require a combination of dollar depreciation, credit expansion and increased government bond issuance.
Coutts pointed out the crucial role of credit conditions, as evidenced by corporate bond spreads (BBB/Baa) compared to US 10-year Treasury yields, which have historically aligned with significant swings in Bitcoin’s cycle. “These spreads are currently narrowing, indicating that companies are succeeding in issuing and rolling over debt despite high interest rates following record increases in 2022 and 2023,” he noted.
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Using the chameleon trend indicator on the corporate spread index, Coutts suggests a strategy: “Long Bitcoin when the index is trending bearish (red) and stay alert for possible trend reversals (turning green).”
The role of the dollar and future prospects
A key to this cycle, according to Coutts, is the behavior of the DXY (Dollar Index), which measures the US dollar against a basket of foreign currencies. “The dollar is tied to a range. A break below 101 would be rocket fuel for Bitcoin,” he claimed, highlighting that market sentiment on liquidity is often reflected in real-time by DXY movements.
Coutts also addressed the US debt situation, suggesting that without a conservative shift in Congress advocating for fiscal responsibility, more fiscal spending is likely in the offing, which could further impact liquidity conditions favorable to Bitcoin.
Coutts concluded with a note of caution mixed with optimism: “While my framework needs 2/3 MSI indicators to turn bullish for macro headwinds to turn into tailwinds, Bitcoin price action is likely to sniff out this inflection in macro before most indicators are responding.”
His analysis suggests that if Bitcoin rises above its all-time high, it would be unwise to bet against it anticipating a possible surge to $150,000 this cycle. “The DXY is key to the Bitcoin cycle because it prices market expectations of liquidity in real time. And there will be liquidity. View the 101/102 level on DXY. If that breaks, we should see ~$150,000 worth of bitcoin this cycle,” he says. noticed.
At the time of writing, BTC was trading at $66,090.
Featured image created with DALL·E, chart from TradingView.com