Why "macro" is not optional
The most common mistake in crypto-and-tech investing is treating the asset as if it floats in isolation: "the technology is great, so it must go up." But every liquid asset you can hold — equities, gold, Bitcoin, dollar — is priced against other liquid assets, and all of those prices are set by one underlying river: the supply and cost of money.
Two macro variables dominate almost everything else: how much money exists (M2) and how much it costs to have it (interest rates). Get these two right and you understand most of the market's direction. Get them wrong and you can be right about the asset and still lose. That's the whole point of this cluster.
Macro bias first (is money flowing in or pulled out?), then asset selection within that bias. A great asset in a liquidity drought still falls (2022 — even Bitcoin -64%). A mediocre asset in a liquidity flood goes up (2020–21, literally everything). The macro setting decides the direction; the asset decides the magnitude.
M2 — the single most important number
M2 is a broad measure of the money supply: cash, checking deposits, savings deposits, and small time deposits held by the public. It's the stock of "spendable money" in an economy. When analysts at scale talk about "liquidity," they usually mean changes in M2.
- M2 rising fast — more money chasing a relatively fixed set of assets → prices go up. This is the liquidity regime, and risk assets (especially crypto) love it.
- M2 flat or falling — the money supply is shrinking → the same assets have to compete for less money → prices get bid down. This is the drought, where even quality assets fall.
- The lag — M2 changes lead asset prices by several months, not the same day. You don't trade the current M2 number; you position for where M2 is heading.
M2 is the engine behind the Bitcoin four-year cycle, the stock market's big runs, and most "risk-on" periods. When you read that Bitcoin "just went up for no reason," the most common reason is M2.
You only need three numbers: the current M2 level, the 12-month growth rate (is it accelerating or decelerating?), and whether central banks are cutting or raising rates (which decides the next M2 print). That's the whole short-term view of the money side.
The other five numbers
Around M2 there are five supporting indicators that explain why M2 is moving and what's coming:
- PMI (Manufacturing & Services) — the purchasing managers' index. Above 50 = expansion, below 50 = contraction. It's a leading indicator: where PMI is going, the economy goes 6–9 months later.
- CPI (inflation) — the headline price level. The central bank's stated target is ~2%. When CPI runs hot, the bank raises rates (tightening → bad for M2). When CPI cools, it can cut (easing → good for M2). CPI drives rate decisions, which drive M2.
- Real interest rates — the nominal rate minus inflation. This is the true cost of money. Negative real rates (rate below inflation) punish holding cash and reward holding assets → a historically strong tailwind for risk assets.
- DXY (dollar index) — the value of the dollar against a basket of currencies. A falling dollar often coincides with rising gold, crypto and other "dollar-soft" assets. A rising dollar usually squeezes them. (BTC and DXY have a strong inverse correlation.)
- VIX — the "fear index," a measure of expected stock-market volatility. Low VIX = complacency = late in a risk-on regime. Spiking VIX = the market is scared = usually the beginning of a pullback.
| Signal | Risk-on (buy/hold) reading | Risk-off (caution) reading |
|---|---|---|
| M2 | Growth > 5% and accelerating | Growth < 2% or negative |
| Rates | Being cut (easing cycle) | Being raised (tightening cycle) |
| CPI | Below 2% (room to cut) | Above 3% (forces tightening) |
| Real rates | Negative / falling | Rising / deep positive |
| DXY | Falling | Strong / rising |
| VIX | Rising from low (early) or falling | Spike from low base (event) |
The four-year cycle, in macro terms
Now the Bitcoin four-year cycle makes complete sense without mysticism:
- The trigger (mechanical) — the halving cuts new supply and tends to set the start of a new cycle phase.
- The fuel (macro) — the magnitude depends on M2 and rates. When a halving lands in an easing cycle (rates cutting, M2 growing), you get a strong bull. When a halving lands in a tightening cycle, you get a muted or failed one (2022 is the cautionary case).
- The top (sentiment + macro reversal) — cycles tend to top when the margins turn: M2 growth starts decelerating even if it's still positive, and VIX starts compressing on a complacent crowd. The top is usually a macro inflection, not a "news" event.
You don't need to predict the Bitcoin price. You need to read the regime: is this a liquidity-expansion regime (favorable for risk) or a contraction regime (unfavorable)? The macro cluster exists so you can answer that one question reliably — and then decide how aggressive or defensive to be inside the regime you're in.
Next steps
Learning content. This is not investment advice. Macro reading is a probabilistic art, not a precise science — indicators lag, central banks change their minds, and surprises happen. Treat the regime read as a bias for your positioning, not a forecast. Sourced from Raoul Pal, Anthony Pompliano, Jordi Visser, Peter Diamandis & Bankless. The World is Spinning Faster Than Before is an educational project.