Analysts Reveal The Chart That Predicts Bitcoin Better Than M2 Ever Did

For years, traders looked to global M2 money supply as a key gauge of liquidity and risk appetite. However, according to on-chain analyst Willy Woo, that era is over. Liquidity remains a fundamental driver for risk assets like Bitcoin, as it creates the capacity for price movement, but psychology determines when that movement happens.

Willy Woo argues that the US Dollar Index (DXY), rather than global M2, is now the most accurate indicator for Bitcoin’s direction. He explains: “Markets don’t follow the expansion of global M2; they are speculative. Risk assets lead M2… BTC acts like a liquidity-sensing mechanism. M2 is a flawed metric because it’s measured in USD, but only 17% of global liquidity is actually dollars,” Woo wrote on X (formerly Twitter).

The DXY tracks the dollar's strength against a basket of major currencies and provides a clearer view of global risk sentiment. According to Woo, Bitcoin exhibits an inverse correlation to the dollar’s strength, making DXY a leading signal for Bitcoin’s price movements.

Woo’s updated model highlights that the charts of Bitcoin and inverse DXY display a strong MACD divergence. This indicates that markets are increasingly reliant on the dollar’s movements as a signal for liquidity conditions.

He elaborates: “High DXY (strong dollar) means a flight towards safety and risk-off sentiment. USD is considered a safe-haven currency (despite debasing at 7% per year over the long term).”

In essence, when the dollar strengthens (DXY rises), liquidity tightens, and Bitcoin's value tends to weaken. Conversely, when DXY falls, risk appetite returns, and Bitcoin rallies as global liquidity expands.

While Woo suggests using DXY as Bitcoin’s new compass, analysts disagree on where DXY might be heading next. Macro trader Donny Dicey believes that the dollar is nearing a downturn, potentially setting the stage for Bitcoin’s next breakout.

He states: “Gold has telegraphed what’s coming for DXY — it has been leading DXY… Gold typically front-runs DXY’s trend… It tends to sniff out easing conditions ahead of time, as it reacts directly to liquidity expectations, rather than official policy shifts. Gold’s breakout is signaling that the market expects the U.S. to weaken the dollar.”

Dicey also notes that DXY’s recent rounded bottom mirrors Bitcoin’s rounded top, indicating a possible inflection point: “Once DXY drops, liquidity floods back, and BTC reacts explosively,” he adds.

Not all analysts are optimistic about a weaker DXY. Analyst Henrik Zeberg predicts that DXY could surge to 117–120 by year-end, warning that the 'King Dollar' narrative remains intact. He emphasizes, “A strong dollar means pain for risk assets.”

Investor Kyle Chasse echoes this sentiment, referencing Zeberg’s model to stress that a strong dollar is likely to pressure both equities and Bitcoin, reinforcing Woo’s thesis that tracking DXY—not M2—is crucial for navigating the next macro cycle.

As global liquidity becomes increasingly tied to the strength of the US dollar, the DXY-Bitcoin correlation may emerge as the defining chart for 2025.

If Dicey’s easing thesis materializes, a weaker DXY could propel Bitcoin’s next significant rally. However, if Zeberg’s 'King Dollar' scenario plays out, risk assets—including Bitcoin—may face further downward pressure before any recovery.

Either way, Woo and other analysts agree that in today’s speculative markets, investors must focus on DXY instead of global M2 to predict Bitcoin’s next major move.