In a recent twitter.com/Jamie1Coutts/status/1790899716143870118″ target=”_blank” rel=”nofollow”>analysis, James Coutts, chief crypto analyst at Realvision, flagged a potential bullish turn in bitcoin's near future, attributing the anticipated shift to changes in global liquidity measures, specifically the global money supply (M2) index, which is widely seen as as the most important price catalyst. Coutts detailed this anticipation in a thread on x, where he examined the relationship between leading economic indicators and bitcoin price cycles.
The global money supply and its correlation with bitcoin
Coutts's analysis begins with M2 monetary aggregates, which consist of cash, demand deposits, and nearly easily convertible money. He tracks these aggregates across the 12 largest economies, all adjusted to the USD. She suggests that this measure is critical to understanding liquidity flows within the credit-based global fiat financial system. According to Coutts, “the money supply often moves in one direction, and significant declines like those seen in 2022 are rare and usually brief.”
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Global M2 is currently neutral, but Coutts predicts imminent changes: “There is a sea of red on my macro and liquidity dashboard, but signs are emerging 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 of change of M2 money supply is more critical than its nominal value. Coutts noted: “The chart confirms what our MSI performance chart suggests: bitcoin generally moves with changes in M2 momentum.” He explained that even though the MSI indicator of global money supply is in an uptrend, momentum remains sluggish, maintaining a Neutral MSI. To move to a bullish MSI signal, an increase in momentum is necessary, which requires a combination of dollar depreciation, credit expansion, and increased public debt issuance.
Coutts noted the crucial role of credit conditions, as evidenced by corporate bond spreads (BBB/Baa) versus the 10-year US Treasury yield, which have historically aligned with significant inflections in the bitcoin cycle. “These spreads are currently narrowing, indicating that companies are managing to issue and refinance debt despite high interest rates resulting from record hikes 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 shows a bearish trend (red) and stay alert for possible trend changes (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 within a limited range. A break below 101 would be fuel for bitcoin,” she stated, emphasizing that market sentiment on liquidity is often reflected in real-time in the movements of the DXY.
Coutts also addressed the US debt situation, suggesting that without a conservative shift in Congress advocating for fiscal responsibility, more deficit spending is likely on the horizon, which could further influence debt conditions. bitcoin-friendly liquidity.
Coutts concluded on a note of caution mixed with optimism: “While my framework needs 2/3 of the MSI indicators to turn bullish for macro headwinds to turn into tailwinds, bitcoin price action will likely detect this.” inflection in the macro before most indicators react.
Their analysis suggests that if bitcoin surpasses its all-time highs, it would be unwise to bet against it, anticipating possible rises towards $150,000 in this cycle. “The DXY holds the key to the bitcoin cycle, as it assesses market expectations about liquidity in real time. And liquidity is coming. Look at level 101/102 in DXY. If that breaks, then we should see ~$150k btc this cycle,” he said. twitter.com/Jamie1Coutts/status/1790882221890650280″ target=”_blank” rel=”nofollow”>commented.
At the time of publication, btc was trading at $66,090.
Featured image created with DALL·E, chart from TradingView.com
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