Understanding the macroeconomic forces that influence Bitcoin’s price is essential for traders and investors aiming to navigate its volatile cycles. One compelling approach involves analyzing Bitcoin as a percentage of global M2 money supply—a metric that reveals how Bitcoin's market value compares to the world’s broadest measure of money in circulation. This article explores a straightforward yet effective indicator designed to generate buy and sell signals based on this ratio, offering insights into Bitcoin’s long-term price cycles.
The indicator, originally developed by UnderstandingBitcoinPrice on TradingView, leverages macro-financial data to identify potential entry and exit points in the Bitcoin market. By combining year-over-year (YoY) changes in global M2 with Bitcoin’s valuation relative to its historical average, the system aims to capture major upward trends while avoiding overbought conditions.
How the Bitcoin vs. Global M2 Signal System Works
At its core, this indicator uses two primary conditions to generate trading signals:
- Buy Signal: Triggered when the YoY growth of global M2 exceeds 2.5%, and the current Bitcoin price as a percentage of global M2 is below its 365-day Simple Moving Average (SMA).
- Sell Signal: Activated when the Bitcoin-to-M2 ratio rises more than 0.7 percentage points above its yearly SMA.
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This dual-condition logic is rooted in monetary theory. When central banks expand the money supply rapidly (reflected in rising M2), liquidity often flows into alternative stores of value like Bitcoin—especially when it remains undervalued relative to its historical trend. Conversely, when the ratio becomes stretched, it may indicate speculative overheating, prompting a sell signal.
Why Global M2 Matters for Bitcoin
Global M2 represents the total amount of money in circulation across major economies, including cash, checking deposits, and easily convertible near money. As central banks engage in quantitative easing or stimulus programs, M2 typically expands. Historically, such expansions have coincided with strong rallies in Bitcoin’s price.
By measuring Bitcoin’s market capitalization as a fraction of global M2, we gain perspective on its adoption and perceived value within the broader financial system. For example:
- In 2010, Bitcoin represented a negligible fraction of global M2.
- By 2021, during the post-pandemic liquidity surge, it briefly approached 0.5% of global M2.
- Periods below the long-term SMA often align with bear markets or early recovery phases.
This context helps explain why the indicator uses the SMA as a baseline for fair value. Deviations below suggest potential undervaluation; sustained deviations above may indicate euphoria.
Practical Use and Customization
Although the original script hardcodes key parameters—such as the 2.5% YoY M2 threshold and 0.7% SMA deviation—these values are not set in stone. Traders can adjust them to suit different risk profiles or time horizons.
For instance:
- A conservative trader might raise the buy threshold to 3.0% YoY M2 growth, waiting for stronger monetary expansion signals.
- An aggressive trader could lower the sell threshold to 0.5%, locking in gains earlier during rallies.
Backtesting across previous cycles (2013, 2017, 2021) shows that the basic version captures most major uptrends while avoiding late-cycle peaks. However, no indicator is foolproof—false signals can occur during periods of financial stress or regulatory shocks.
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Open-Source Transparency and Community Value
In line with TradingView’s collaborative ethos, this script is published as open-source, allowing users to inspect, modify, and validate its logic. Transparency builds trust, especially in an ecosystem where opaque algorithms and paid signal groups abound.
While the code is free to use, redistribution must comply with TradingView’s House Rules, ensuring proper attribution and ethical sharing. This openness encourages community-driven improvement—researchers can test alternative metrics (e.g., M1 growth, inflation-adjusted ratios) or integrate machine learning enhancements.
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Frequently Asked Questions (FAQ)
Q: What is global M2, and why does it matter for Bitcoin?
A: Global M2 measures the total money supply across major economies, including cash, savings, and near-money assets. When M2 grows rapidly due to central bank policies, excess liquidity often flows into alternative assets like Bitcoin, driving price appreciation.
Q: Can this indicator predict exact price levels?
A: No—it doesn’t forecast specific prices but instead identifies favorable conditions for buying or selling based on valuation relative to monetary trends. It works best as part of a broader analytical framework.
Q: How often do buy/sell signals appear?
A: Given Bitcoin’s ~4-year cycle linked to halvings and macro trends, signals typically emerge every few years. For example, a buy signal might appear after a bear market bottom during strong monetary expansion.
Q: Is this strategy suitable for short-term traders?
A: Primarily designed for medium-to-long-term investors riding macro cycles, it may produce fewer signals than day-trading tools. Short-term traders should combine it with technical indicators.
Q: Where can I access the script?
A: The original script is available on TradingView under an open-source license. Users can view and adapt the code for personal use.
Q: Does this model account for regulatory or geopolitical risks?
A: Not directly. Like most quantitative models, it focuses on financial variables and assumes normal market conditions. External shocks require separate risk assessment.
Final Thoughts: Using Data to Ride the Bitcoin Wave
The "Bitcoin as % of Global M2" signal system offers a compelling blend of simplicity and economic intuition. Rather than chasing momentum or sentiment, it grounds decision-making in measurable macro trends—offering a disciplined way to participate in Bitcoin’s cyclical growth.
As monetary policy continues to evolve in 2025 and beyond, indicators like this will become increasingly valuable for separating noise from meaningful shifts in investor behavior.
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