KOLs on platform X often simplify the rise of M2 or the weakening of the dollar as a signal for Bitcoin's surge, but the actual relationship between the two and Bitcoin is not linear; it is a conditional correlation 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 84-day forward M2, and a reverse correlation of -0.58 with the Dollar Index (DXY), while the correlation between M2 and DXY itself is -0.71.
However, this correlation is only reflected in medium to long-term trends. On a single-day basis, the correlation of Bitcoin's returns with M2 and DXY is only 0.02 and 0.04, respectively, indicating that the so-called "dollar up, Bitcoin down" is not a single-day phenomenon.
The lag effect is a key variable: the correlation between Bitcoin's returns and M2 trends from six weeks ago (42 days) is the highest at 0.16, while the correlation with DXY from one month ago (33 days) is -0.20.
To illustrate, M2 acts like a slow gravitational force, taking several weeks to show its impact; DXY, on the other hand, is like a gas pedal, able to apply pressure quickly, and the two rarely operate in sync.
The market differentiation in 2025 further highlights this conditionality: before the peak of Bitcoin on October 6, the correlation with M2 levels reached as high as 0.89, with 84-day forward M2 accurately tracking the price path; after the peak, the correlation reversed to -0.49, with M2 continuing to rise but prices diverging, while the reverse correlation with DXY remained stable at -0.60.
The 180-day rolling correlation data is more intuitive: it peaked at 0.94 on December 26, 2024, dropped to -0.16 on September 30, 2025, and was -0.12 on November 20, reflecting a significant leading effect of M2 during the bull market, while in the later stages of the cycle, the strengthening dollar and position adjustments weakened the correlation.
The core logic lies in the division of roles between the two: M2 is a slow trend compass that can only drive Bitcoin to initiate months-long increases when the dollar is stable or weakening; DXY dominates short-term fluctuations, suppressing increases and deepening corrections when it strengthens.
When M2 and DXY are aligned, Bitcoin's trend is clear and smooth; when the two conflict, previously effective lag strategies will fail, and the correlation will collapse.
One must be cautious of the misconception 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, with the optimal lag period fluctuating with market changes.
In practice, one should monitor the slope of returns for M2 and DXY within 1-3 months, ensuring that both are aligned before referencing M2 indicators, while allowing the lag value to fluctuate within a reasonable range rather than locking in a single number.
Bitcoin's movement is not determined by a single variable; the combined effects of M2 and the dollar must be assessed in conjunction with the cycle stage and lag effects.
Rather than relying on simple chart overlays, it is better to construct a dynamic framework: track M2 trends when the dollar is stable, and focus on short-term pressures when the dollar is volatile, to more accurately capture market signals.
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