Bitcoin's Biggest Headwind Just Returned — I've Stopped Buying

[00:00:00]The US dollar strength index or Dixie has just blown through a major turning point that we were kind of hoping it would get rejected from and continue this macro downturn that we've been in for a couple of years now. But breaking above this is probably going to be at a bit of a headwind for Bitcoin and risk-on assets due to the inverse correlation that they have. As one is moving up, the US dollar strength index, the other is typically moving down. Now, I know what you're thinking.

[00:00:28]Bitcoin may be impacted by this, but we're an asset that's massively influenced by global liquidity. We can see here on the global M2 versus Bitcoin chart when we're in contraction, sure, Bitcoin is struggling. We're in a bear market. But right now we're skyrocketing to new all-time highs.

[00:00:46]So, surely the negative influence by the US dollar strength index, the Dixie, is potentially negated and that may be true to some extent, but what we've got here on TradingView is looking at global liquidity. I won't What you should be able to see here is the correlation between Bitcoin and global liquidity over the past 4 years is about 0.638 or 63.8%, which is a fairly strong correlation. As one is moving up, the other is typically moving up as well.

[00:01:14]But we need to acknowledge that global liquidity is typically moving up into the right.

[00:01:20]So, if we measure on a year-on-year basis, we can see that this correlation actually increases to 0.707.

[00:01:29]If we look at the rate of acceleration or contraction, then that gives us a much clearer idea of what's going on in the underlying liquidity environment.

[00:01:38]Now, we've got global liquidity and global M2. They differ slightly. Global liquidity includes overnight repo and bank liabilities and capital, etc. So, if we just purely look at global M2, cash and cash equivalents that is actually spendable, the correlation increases to 0.732.

[00:01:58]And just as a quick note as well, if we actually look at the stablecoin correlation, again, on a non-year-on-year basis, we can see that USDT, USDC, Dai, etc. have a very strong correlation with Bitcoin,.791. But again, on a year-on-year basis, this increases to 87.2% and this continues to decline.

[00:02:17]But one thing we also need to acknowledge is this usually takes a little bit of time to really influence the Bitcoin price action. We don't typically see the actual impact of expansion or contraction or acceleration or deceleration in global M2 for around 10 weeks. So, if we add a 70-day offset, the correlation actually increases to 76.4% and now of course this ranges, but this is an incredibly strong correlation and really we don't need the data to tell us it. We just zoom out, we can see almost to the dot it's been marking Bitcoin all-time highs, marking turning points in bear market lows. Not just over the past 4 years, but throughout the history of Bitcoin. It's pretty remarkable how reactive we've been. It does potentially bring into question if Bitcoin really was ever influenced by its own 4-year fundamental halving cycle or if it's just a consequence of expansion and contraction in the global money supply.

[00:03:14]But you're also thinking, "Matt, it was only last week you were bullish.

[00:03:20]Why have you stopped buying?"

[00:03:23]We can see over the past few months really, I've been pretty aggressively accumulating as we first had that dip down to 60,000 and then that secondary dip to a slightly lower low.

[00:03:33]But as of the past 9 days, I've not actually bought any more BTC and any dry powder, any capital I've had available to deploy, I've actually been holding back. Now again, I know you may be thinking I'm a hypocrite.

[00:03:47]We look at the fear and greed last week, we see we're in extreme fear. US PMI confidence in the US economic output and manufacturing had climbed into the bullish region. The forward 12-month returns when we see these signals was incredibly positive in the S&P. Not only that, there was an incredible amount of short volume. We could see that the underlying sentiment, the US consumer sentiment index printed the lowest value ever.

[00:04:11]And ultimately, these pretty much marked bear market lows to the bottom and we just seen these signals again. So, why are you not buying?

[00:04:20]Well, because we can see here the macro tailwinds, it's rare that Bitcoin really moves against them. And that first point I brought up, the US dollar strength index, we can see we've broken over this red resistance region, which we'd marked out for many, many months. That'd been really been a key turning point over the past decade. Every time we'd hit it, we either had a big retracement or when we broke above, we had a big period of expansion.

[00:04:45]Now, what we can see is that if we zoom in, we have broken above, but not all hope is lost just yet. Fingers crossed, because we can see the three previous instances that we've broken through this resistance level. The 8th of May, 2025.

[00:05:00]If I just very quickly go back here, the 8th of May, 2025, we can see that this actually marked a pretty decent accumulation opportunity for Bitcoin. We can see it actually came right around here before we ran to a new all-time high. The previous instance, 12th of April, 2022. Now, this one was one where once we'd actually broken through this red resistance level and the secondary line I've added above where again, we can see it's been a pretty good turning point. Every time we've come back to this level, it's been a major point of support or resistance above this major red region. But the 12th of April, 2022, again, if I just scroll back, we can see all the way back here.

[00:05:40]This actually was not the best time to be accumulating, cuz it was just prior to Bitcoin experiencing around a 60% retracement of further downside.

[00:05:52]Now, the time prior to that again was the 18th of March, 2020, which was just after this COVID 2020 dip when we rocketed to new all-time highs. So, it's not that all hope is lost.

[00:06:04]It's just that I'm waiting for a better risk-reward opportunity.

[00:06:09]If we look at the US dollar strength index, not global M2, not liquidity, not stable coins, but bear in mind this correlation is incredibly negative. So, we actually need to invert the scale.

[00:06:19]We can see, again, just zooming out, it's pretty clear and obvious that Bitcoin and the inverse US dollar strength index on a year-on-year basis have a pretty strong correlation.

[00:06:29]And if I overlay that onto the price right now, it doesn't look so promising. Now, what we'd done in research previously was pointed out that in around the end of July, in a week or two's time, this had actually been pointing to potentially a bounce.

[00:06:43]Maybe just going into this resistance zone, but at least some short-term relief in the Bitcoin price action.

[00:06:48]Whereas now that's broken through that key resistance level and it's started turning to the downside once again. So, I'm not backing down on my stance that down here there is good value for money.

[00:06:59]I think Bitcoin is still a great risk-reward around here, but we have to keep in mind my average accumulation price currently is about $64,700 per Bitcoin throughout 2026, which is not a million miles away from where price is right now. So, either I can deploy more capital at that level and lock that in, which I don't think is a bad idea, or potentially wait to get lower prices, not my base case, or what I'm hoping to see is Bitcoin reclaim some of these key resistance levels. We can see and we pointed this out to site subscribers for some time that this pink zone would be the key point for Bitcoin where we'd likely experience some resistance, but we wanted to see a higher low at around the $62,000 level, which we did. If we can break above and start moving above these key resistance levels, then I'm gladly going to jump in at higher prices. Because one thing I would like to hammer home is at least for me, it's not about just buying low prices. Because realistically, if we look back in hindsight, buying back, you know, after we'd had the dips in the previous bear market here and here and here, were good accumulation opportunities. No one's looking back at people buying at 30,000, 20,000 and saying, "That was a bad time to buy."

[00:08:08]But buying at those levels and then having to endure more downside doesn't feel great.

[00:08:14]I want to minimize my exposed drawdown.

[00:08:17]So buying higher after a proper trend confirmation to the upside increases my ultimate probability of a better position. Now around that 71 to 72,000 region is where the short-term holder realized prices and where the dynamic short-term holder realized prices. If you didn't see our last video looking at dynamic boundaries for long- and short-term holders, then please do. But if we go down here, we can see that the short-term holder realized price based on this dynamic level is again around $71,000. They're not too dissimilar.

[00:08:50]So I'd like to see some Bitcoin strength continuing in spite of US dollar strength movements to the upside. Hopefully we can hit that resistance and start moving down. But if not, again, if we just scroll up and look at the dynamic realized price, cuz we're filtering out dust, unspendable Bitcoin inscriptions, miner rewards from block subsidy.

[00:09:13]If we filter that out, then that filtered realized price is coming around 58,600. And the long-term holder, the dynamic long-term holder realized price, about 56K.

[00:09:24]Very, very close. If I can buy Bitcoin beneath the current low that we've set at around 58, $56,000, again, it's not a substantially lower low, but it's lower than my current entry price. And if we look somewhere around a 10% to, say, 13% 14% retracement from here, a little bit more bang for my buck. But, as I said, that's not my base case. My base case is we come back, break above these, come back up, and start reclaiming some key resistance levels.

[00:09:55]But, I need to be honest. I can't just look at the data, the macroeconomic headwinds that may be coming our way, and ignore it because I want price to continue going up and continue accumulating in spite of some less than ideal data.

[00:10:10]I have to be realistic. I have to take my emotions out of that. And I know people are going to say, "Oh, yeah, but you've been so bullish."

[00:10:15]The data changes. This is why I've said for years, you need to react and not predict.

[00:10:23]Do I think the Bitcoin bear market is over?

[00:10:27]Who knows? Literally, nobody knows.

[00:10:32]Do I think there is good value for money down here?

[00:10:35]Absolutely. 100%. If I'd not already pulled the trigger substantially in this region, I would very much be looking to accumulate some sats down here.

[00:10:45]But, given the fact, it's not like I have unlimited money, I have to be a little bit more choosy with my accumulation at these levels.

[00:10:54]I'd rather wait and potentially get more bang for my buck, or wait for a confirmed trend reversal.

[00:11:02]Hopefully, we see global M2 start trending more aggressive to the upside and see that year-on-year expansion. Hopefully, see the US dollar strength index start turning down, get rejected to that resistance level, break back beneath that red resistance zone.

[00:11:15]But, again, we have to be realistic here and say that right now, there are some things that we need to be keeping an eye on. But, I hope you enjoyed this content. Let me know your thoughts below in the comments and on social media. are you accumulating at these prices?

[00:11:34]Are you seeing data on chain holder behavior? Are you seeing derivative liquidations? Are you seeing some technical points that make you think, "Well, of course I'm buying down here."

[00:11:42]You were thinking that these macroeconomic shifts maybe are as influential as I'm maybe thinking they will be. Who knows.

[00:11:50]Whatever your thoughts are, please leave them down below in the comments. I look forward to reading and replying to them. And as always, thank you all very much for watching and I'll see you in the next one.

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