Macro key signals that could trigger a Bitcoin bull market

Author: Matt Crosby, Director of Research and Analysis at Bitcoin Magazine Pro; Compiled by: Shaw, Jinse Finance

Bitcoin surged sharply in a single day last week after a long time, strongly rallying from recent lows. The trigger was the U.S. Consumer Price Index (CPI) data that came in below market expectations. Previously, the market generally believed that inflation would remain stubbornly high. However, this time the data missed expectations, and almost immediately the major asset markets re-priced.

This article will break down: why official inflation data will likely weaken; the complete transmission logic between inflation, market liquidity, and Bitcoin; and the two risk factors that could still interrupt this round of rebound.

Quick read highlights

• After CPI came in below expectations, Bitcoin rebounded sharply, easing concerns in the market about the Federal Reserve continuing to tighten monetary policy.

• The implied probability of keeping interest rates unchanged jumped from under 60% to around 85% in an instant, while the probability of a rate hike crashed from above 35% to single digits.

• Truflation, a real-time inflation indicator, leads the official CPI data by about 45 days; the current estimate for inflation is already approaching 2%.

• The year-over-year growth rate of global broad money supply M2 has likely already bottomed out.

• Two key risks: the Middle East situation escalating boosts oil prices again, re-igniting inflation; and the U.S. Dollar Index reaching a critical inflection point.

Market reaction logic

If inflation continues to rise, the Fed tends to raise rates to curb consumption, market liquidity tightens, and risk assets face pressure and weaken. Once inflation cools, the entire transmission chain runs in reverse. Over the past decade, the historical pattern has been clear: during the phase when CPI rises rapidly, Bitcoin price action has generally been weak; during the phase when inflation falls, the market environment becomes more favorable for Bitcoin to rise. That is why inflation data that misses expectations for a single month triggered such intense market volatility. The market reaction is not purely in response to this particular set of data, but rather to the subsequent direction of interest rates and liquidity that the data signals.

Figure 1: CPI below expectations, and BTC rebounds as well.

Before the data was released, the implied probability that the Fed would keep rates unchanged had fallen back to below 60%, while the probability of hiking rates by 25 basis points rose to above 35%. In the brief moment between the data release and its immediate interpretation, the probability of keeping rates unchanged spiked to around 85%, while the probability of a rate hike collapsed to single digits.

Figure 2: The target range for the federal benchmark interest rate remains stable near 4%.

Liquidity transmission chain

CPI falling has a clear negative correlation with the year-over-year growth rate of global broad money supply M2. When inflation declines, central banks in different countries loosen monetary easing policies, and the supply of global money and cash equivalents expands accordingly. Looking across Bitcoin’s full development history, the year-over-year growth rate of global M2—lagging by about 10 weeks—is one of the most stable leading indicators for predicting Bitcoin’s price trajectory.

Figure 3: Global M2 is trending upward.

Currently, the year-over-year growth rate of global broad money supply M2 is near the bottom range from a few months ago, and it has already shown early signs of recovery. Particularly worth noting is the time-order pattern from the previous cycle: Bitcoin found its market bottom on November 21, 2022, while global M2 growth did not turn upward until about 55 days later. Before liquidity data confirmed the recovery, Bitcoin had already risen by 30% to 40%.

Crude oil

The most direct hidden threat to the logic of cooling inflation comes from the energy sector. Driven by a renewed escalation of the Middle East situation, crude oil prices have recently surged sharply. Energy has an extremely high weight in official inflation statistics. If international oil prices continue to rise, they will directly push up inflation data, completely reversing the market’s re-pricing this time. In the prediction market, the probability that shipping in the region resumes normal operations this month has plunged from over 60% to nearly zero, reflecting how fast the situation is worsening.

Figure 4: USOIL prices have rebounded from a recent low and climbed back to around $80.

This is also the core source of downside risk for the market. If geopolitical conflict continues to escalate, its impact may replicate the effect seen during the 2022 FTX collapse: even if the market’s self-driven selling and clearing phase is already over, the last round of external shocks can still knock down the coin price. In that scenario, the resonance range around $50k would become the target downside area—where price, long-term holder realized cost, and the CVDD indicator converge in three lines.

U.S. dollar

The U.S. Dollar Index has recently met resistance at a key level and pulled back. It is currently trading around the 100-week moving average. The negative correlation between the U.S. dollar and Bitcoin is one of the most prominent macro linkages in the crypto market, and the U.S. dollar’s year-over-year trend is also tightly tied to the global broad money supply M2.

Figure 5: The U.S. Dollar Index is facing resistance, at a crossroads.

If the U.S. Dollar Index breaks upward with strength, all risk-on assets will face collective pressure. Conversely, if the dollar continues its multi-year downward trend and validly breaks below the 100-week moving average, Bitcoin will enter one of the strongest macro tailwind environments in a long time.

Comprehensive summary

Leading inflation indicators suggest that official inflation still has room to fall. Market expectations for interest rates have been fully flipped, and it no longer bets on further monetary tightening. Global liquidity has shown an inflection point. The timing rhythm for Bitcoin to form a bottom this round is also highly similar to the prior cycle, when it bottomed earlier than macro indicators.

Oil prices boosting an inflation rebound, and the U.S. Dollar Index breaking upward, are two types of risks that will delay the start of the bull market. If geopolitical conflict deteriorates sharply, the coin price may face a final wave of sell-offs, dipping toward the range around $50,000. But the fundamentals, technicals, time cycle, and macro liquidity now form an upside tailwind resonance in the same direction—and over the past half year, the market has never seen such a situation.