How do M2 and the US dollar affect the price movement of Bitcoin? Can we really "escape the peak" by referencing the data of these two?

Kols on platform X often simplify the rise of M2 or the weakening of the dollar as a signal for Bitcoin's surge, but in reality, the relationship between the two and Bitcoin is not linear; it is a conditional relationship influenced by time lags and market cycles.

Data from the past 12 months shows that Bitcoin has a correlation of 0.78 with M2 levels lagging by 84 days, a correlation of 0.77 with M2 84 days forward, and a reverse correlation of -0.58 with the US Dollar Index (DXY), while the correlation coefficient between M2 and DXY itself is -0.71.

However, this correlation only manifests in the medium to long-term trends. On a single-day dimension, the yield correlation between Bitcoin and M2, DXY is only 0.02 and 0.04, and the so-called “dollar rise, Bitcoin fall” is not a one-day phenomenon.

Lag effect is a key variable: Bitcoin returns are most correlated with the M2 trend from 6 weeks ago (42 days) with a correlation of 0.16, and the correlation with the DXY from 1 month ago (33 days) is -0.20.

Metaphorically, M2 is like a slow gravitational force that takes weeks to show its effects; DXY is like an accelerator that can quickly apply pressure, and the two rarely operate in sync.

The market differentiation will be more pronounced under these conditions in 2025: before the peak of Bitcoin on October 6, its correlation with the level of M2 was as high as 0.89, with a precise 84-day forward M2 tracking the price path; after the peak, the correlation reversed to -0.49, with M2 continuing to rise but the price diverging, while the -0.60 inverse correlation with DXY remained stable.

180-day rolling correlation data is more intuitive: peaking at 0.94 on December 26, 2024, dropping to -0.16 on September 30, 2025, and at -0.12 on November 20, reflecting the significant leading effect of M2 in a bull market, while the weakening of correlation in the later part of the cycle is due to a stronger dollar and position adjustments.

The core logic lies in the division of roles between the two: M2 is a slow trend compass, which can only drive Bitcoin to initiate a multi-month rise when the US dollar is stable or weakening; DXY dominates short-term fluctuations, and when it strengthens, it suppresses the rise and deepens the correction.

When M2 and DXY are in the same direction, the Bitcoin trend is clear and smooth; when the two conflict, the previously effective lagging strategy will fail, and the correlation will collapse.

Beware of the pitfalls of fixed lag values: the 84-day window performs well in a bull market, but its effectiveness declines after the dollar strengthens at the end of 2025, and the optimal lag period fluctuates with market changes.

In practice, the yield slope of M2 and DXY should be monitored over a period of 1-3 months. Ensure that the directions of both are consistent before referencing the M2 indicator, while allowing the lagged values to fluctuate within a reasonable range rather than locking in a single number.

The trend of Bitcoin is not determined by a single variable; the combined effects of M2 and the US dollar need to be assessed in conjunction with the phase of the cycle and lag effects.

Instead of relying on simple chart overlays, it is better to build a dynamic framework: track M2 trends when the dollar is stable, and focus on short-term pressures when the dollar is volatile, which might allow for more accurate capture of market signals.