(Kitco News) – When analysts try to predict how Bitcoin (Bitcoin) will perform in the future, most analyze price action and use technical indicators such as RSI and Fibonacci retracement levels. Others focus on fundamental indicators such as the Bitcoin halving, circulating supply and network hashrate.

For Jamie Coutts, chief crypto analyst at Real Vision, the best indicators of Bitcoin’s future performance are the M2 money supply and the performance of the US dollar (USD) index (DXY), which measures the value of the dollar compared to a basket of six dominant global currencies.

“The Global Money Supply index tracks M2 monetary aggregates from 12 of the world’s largest economies, all in US dollars,” Coutts he said at X. “In our fiat, credit-based financial system, the money supply generally moves in one direction. Significant drops, like in 2022, are rare and typically brief.”

“There is currently a sea of ​​red on my macro and liquidity dashboard,” he noted. “But signs are emerging that this is about to change. Global M2 is currently neutral and holds the key to the next stage of the cycle.”

Coutts said that of the three main measures he tracks in his “Bitcoin/Liquidity framework” – central bank balance sheets, Global M2 and DXY – “Global M2 appears to capture most of the movement.”

“The rate of change in the money supply is more important than the nominal value,” he said. “The chart confirms what our MSI performance chart suggests: Bitcoin generally moves with changes in M2 momentum.”

Coutts noted that momentum is currently “slow” for the MSI global money supply indicator “despite being in an uptrend,” and said that for “there to be a break from the 2.5-year monetary tightening pattern and a signal bullish MSI, momentum needs to increase.”

He highlighted three factors that, when combined, could help achieve this objective: “dollar depreciation, credit expansion and increased public debt issuance”.

“Improving credit conditions is critical,” said Coutts. “US M2 is about to turn positive on a 12-month basis for the first time since the start of 2021. This could prompt more countries to follow suit in the coming months.”

He added that “corporate bond spreads (BBB/Baa) versus the 10-year US Treasury yield are crucial for monitoring credit conditions” and said: “These spreads have aligned closely with key Bitcoin cycle inflections in the last five years.”

“The chart shows notable changes in corporate bond spread trends, marking Bitcoin’s 2021 peak and 2022 trough,” he noted. “The red and green lines indicate negative and positive trend reversals, coinciding with the ups and downs of the Bitcoin cycle.”

Coutts said there are currently “no immediate concerns as corporate spreads are narrowing,” indicating that “companies are issuing and rolling over debt despite high interest rates arising from record hikes in 2022 and 2023.”

“Using the chameleon trend indicator [chart above] on the corporate spread index provides a clear strategy: buy Bitcoin when the index shows [a] downtrend (red) and stay alert for possible trend reversals (turning green),” he said.

As far as DXY is concerned, Coutts noted that “the dollar is in a range.” He suggested that a break below 101 “would be rocket fuel for Bitcoin.”

Another tailwind for King Crypto is US government debt, which “is unlikely to improve unless fiscally responsible conservatives take control of Congress,” he said. “Unlikely. Moar’s deficit spending is on the way.”

“While my framework needs 2/3 of MSI indicators to turn bullish for macro headwinds to turn into tailwinds, Bitcoin price action will likely detect this macro inflection before most indicators react,” he concluded Coutts. “It better not fade if it breaks above ATHs.”

Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a request to carry out any exchange of goods, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no liability for loss and/or damage arising from the use of this publication.

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