Bitcoin's Role as a Liquidity Indicator in Global Markets

According to Foresight News, cryptocurrency analyst Willy Woo has highlighted the speculative nature of the market, noting that it does not follow the global M2 money supply expansion directly. Instead, markets tend to price in expected liquidity in advance, with risk assets like the S&P 500 and Bitcoin peaking before M2. Woo suggests that Bitcoin acts as a mechanism for sensing liquidity changes. Woo also points out flaws in the M2 metric, which measures the total money supply in an economy, including highly liquid assets like cash and checking deposits (M1), as well as less liquid savings deposits, time deposits, and non-bank financial institution deposits. Although M2 is denominated in U.S. dollars, only 17% of it is actual dollars, with the remainder in foreign currencies. Thus, M2 reflects the strength of the dollar rather than the total money supply. Woo argues that the DXY index, which measures the dollar's strength, is a more effective indicator when assessing its correlation with Bitcoin.