In the world of cryptocurrency analysis, Willy Woo has long been recognized as an insightful analyst who often challenges the popular assumptions of the market. Recently, he clarified the speculative nature of the digital asset market, particularly the relationship between Bitcoin and the global money supply index M2, asserting that the market does not operate directly in accordance with the expansion of M2 as many believe.
Woo points out that, rather than following the trajectory of M2, high-risk assets, typically the S&P 500 index and Bitcoin, tend to peak and be priced before the actual growth rate of global M2 occurs or peaks. This demonstrates an important truth: the market does not reflect current liquidity but is pricing in expected future liquidity. This strong speculative nature leads investors not to wait for official money to be printed or pumped into the system, but instead, they bet on upcoming monetary policy easing actions. Woo describes Bitcoin as a sensor mechanism, capable of identifying and quickly responding to impending changes in the liquidity environment.
Woo's perspective does not stop at critiquing timing but also delves into criticizing fundamental flaws in the M2 measure itself. By definition, M2 is a measure of the total money supply in an economy, including highly liquid assets like cash and demand deposits (M1), plus less liquid assets such as savings deposits, small time deposits, and deposits from non-bank financial institutions. This is a widely used indicator to assess the circulating money and potential inflationary pressures.
However, Woo emphasizes that although the M2 index is often expressed in U.S. dollars, only about 17% of this total money is actual U.S. dollars circulating in the global banking system. The rest of M2 consists of other foreign currencies and deposits computed by conversion. Therefore, M2 does not truly reflect the total money supply comprehensively; rather, it more accurately reflects the strength or weakness of the U.S. dollar against other currencies. If M2 is expanding, it usually accompanies a shift in the value of the dollar.
From this, Woo argues that trying to find a direct correlation between Bitcoin and M2 is a waste. He proposes a much more effective alternative index when assessing the correlation with Bitcoin: the DXY Index (Dollar Index). DXY measures the strength of the U.S. dollar against a basket of other major currencies worldwide.
According to Woo's analysis, when the dollar weakens (DXY decreases), assets priced in U.S. dollars, particularly risk assets like Bitcoin, tend to increase in value because they become cheaper for international investors and show a shift away from traditional safe assets. Conversely, when the dollar strengthens (DXY increases), it puts downward pressure on Bitcoin. Since M2 primarily reflects the strength of the dollar rather than the total money supply, using DXY as a measure will provide a more direct and accurate insight into Bitcoin's pricing dynamics. In summary, for Willy Woo, Bitcoin is not just a speculative asset but also a sophisticated barometer that directly reflects shifts in global capital flows and changes in trust in the world's reserve currency.
