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 is a fundamental driver for risk assets like Bitcoin, creating the capacity for price movement, but psychology determines when that movement happens.

DXY Emerges as Leading Bitcoin Macro Indicator, Says Analyst Willy Woo

Willy Woo argues that the US Dollar Index (DXY), not global M2, is now the most accurate indicator for Bitcoin’s direction.

The analyst added that the DXY, which tracks the dollar’s strength against a basket of major currencies, offers a far clearer view of global risk sentiment and Bitcoin’s inverse correlation to it.

Woo’s updated model highlights that the Bitcoin and inverse DXY charts now show a strong MACD divergence.

BTC vs inverse DXY chart showing positive MACD-D. Source: Willy Woo on X

He says this confirms the market’s growing reliance on the dollar’s movement as a signal of liquidity.

“High DXY (strong dollar) means a flight towards safety and risk-off sentiment…USD is considered a safe-haven currency (never mind in long time frames it debases at 7% per year),” Woo explained.

In essence, when the dollar strengthens, liquidity tightens, and Bitcoin’s value tends to weaken. When DXY falls, risk appetite returns, and Bitcoin rallies as global liquidity expands.

Analysts Split on DXY’s Next Move

While Woo positions DXY as Bitcoin’s new compass, analysts disagree on which way it is pointing.Macro trader Donny Dicey believes that the dollar is close to rolling over, a setup that could unleash Bitcoin’s next breakout.

“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 the official policy shifts. Gold’s breakout is signaling that the market expects the U.S. to weaken the dollar,” Donny explained.

Dicey adds that DXY’s recent rounded bottom mirrors Bitcoin’s rounded top, suggesting an inflection point. “Once DXY drops, liquidity floods back, and BTC reacts explosively,” he added.

However, not everyone shares that optimism. Analyst Henrik Zeberg forecasts that DXY could climb to 117–120 by year-end, warning that the “King Dollar” narrative still holds weight.

“A strong dollar means pain for risk assets,” echoed investor Kyle Chasse, citing Zeberg’s model.

Such a surge would pressure both equities and Bitcoin, reinforcing Woo’s thesis that tracking DXY, not M2, is the smarter play for traders chasing the next macro cycle.

As global liquidity hinges on the strength of the US dollar, the DXY-Bitcoin correlation may become the defining chart of 2025.

If Donny’s easing thesis plays out, a weaker DXY could trigger Bitcoin’s next leg higher. However, if Zeberg’s “King Dollar” scenario wins, risk assets may face another squeeze before relief arrives.

Either way, investors must conduct their own research and watch the dollar, not M2, because in today’s speculative markets, Bitcoin moves in line with the greenback.