In the financial world, there are hundreds of complex indicators to predict market trends. However, sometimes simple signals provide the clearest picture. Currently, two factors are occurring simultaneously: the US Dollar Index (DXY) is plummeting, and the global M2 money supply is expanding strongly again.

In the past, this combination has been a very powerful 'catalyst' for scarce assets like Bitcoin (BTC) – and this time may be no exception. With a price of about $118,000/BTC, up nearly 29% since the beginning of the year, Bitcoin is at the intersection of new money flowing into the market and a weakening USD – which could lead to a strong breakout, potentially doubling in value.

Weak USD – Strong Bitcoin

Throughout Bitcoin's 16-year history, periods of USD weakness have often coincided with strong upward momentum for this digital currency. The DXY – a measure of the USD's strength against a basket of major currencies – has just recorded its deepest decline below the 200-day average in 21 years, coinciding with Bitcoin nearing its historical peak.

This has happened in previous major bull cycles: 2013, 2017, and 2021. When the USD depreciates, investors often turn to decentralized, scarce assets that retain value well across borders – like gold (currently also at a record high) and Bitcoin.

This time, the possibility of a prolonged weak USD is quite high. Many forecasts suggest that the Federal Reserve (Fed) may cut interest rates 1-2 times before the end of 2025, opening the door for a phase of monetary policy easing. At that time, combined with the halving event in 2024 which will halve the number of newly mined Bitcoins, the supply-demand balance will strongly tilt in favor of Bitcoin holders.

Of course, it should be noted that a weak USD does not always mean Bitcoin will rise. In some risk-off market phases, both Bitcoin and the USD can decline. However, looking at the long-term trend, a sustainably weakening DXY is still a positive factor for Bitcoin's price.

Global Money Supply M2 Hits Record High

While the USD weakens, the global M2 money supply – including cash and liquidity deposits at 21 major central banks – has just reached a new record: $55.5 trillion in July, returning to a growth trend that had temporarily halted in 2023.

Bitcoin has historically had a certain correlation with the growth rate of M2. When liquidity increases, investors have more capital to allocate to scarce assets. With a maximum supply of 21 million BTC, Bitcoin stands out as a prominent choice.

Notably, major central banks are collectively injecting liquidity:

  • The Reserve Bank of India has cut the repo rate and lowered the reserve requirement ratio to inject money into the economy.

  • The People's Bank of China maintains an accommodative monetary policy, preparing capital injection packages to stimulate demand.

  • Other major economies are also moving towards a synchronized monetary easing cycle.

Historical data shows that whenever the global M2 increases by 1%, Bitcoin usually records an average return of 65% or more in the 12-18 months following. If this scenario is applied from the current price of $118,000, Bitcoin could very well target the $240,000 range – although of course nothing is guaranteed.

What Should Investors Be Aware Of?

History is a suggestion, but not a prophecy. Rapid M2 growth could trigger inflation, causing central banks to unexpectedly tighten monetary policy, or excess liquidity could flow into other markets instead of crypto.

However, at this moment, the USD is weakening, and global central banks are injecting money strongly, making Bitcoin particularly attractive. If this trend continues, the possibility of Bitcoin doubling from here is entirely feasible.