4 Key Signals Investors Are Watching for Bitcoin's Next Surge

Bitcoin (CRYPTO: BTC) thrives on easy cash the way a bonfire loves dry pine needles. Pile on the tinder and flames leap higher; douse the pile and the glow fades fast.

Right now, a set of four macro gauges suggests that central bankers, specifically the Federal Reserve, could be taking steps to create conditions for a sharp run‑up in the crypto's price. Investors who track these dials before the crowd often catch Bitcoin's next lift while everyone else is still debating headlines.

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1. The money supply

Think of the broad U.S. money supply (M2) as one of the many fuel tanks of the economy.

When this particular tank is full, there's more cash available for everything from home loans to speculative assets like Bitcoin. When it is shrinking, households and businesses pull back, and risk assets struggle. Furthermore, as a rule of thumb, when money is easier to come by, investors tend to be more willing to take riskier bets, like in cryptocurrency.

After shrinking for many months, M2 growth turned positive in early April. It's now roughly 1% above last year's level, according to the latest data from the Federal Reserve of St. Louis.

That's not a huge jump, but history shows that the directional switch itself matters. Every major post‑2010 Bitcoin rally began only after M2 stopped contracting. So keep an eye on its trajectory.

Image source: Getty Images.

2. Bank reserves

Bank reserves are the cash deposits commercial banks keep parked at the Fed.

A high level of reserves means that banks can lend freely to each other and to their many customers without worrying about running short on funds, which keeps credit cheap and plentiful. Cheap credit is good news for assets that thrive on liquidity, like Bitcoin.

Reserves have stayed above $3 trillion for most of 2025, well above the levels that regulators calculate as being comfortable. With that much cash sitting idle, banks have little reason to slam the brakes on lending, and extra credit tends to flow toward higher‑risk corners of the market.

In other words, for as long as this situation lasts, it will be a tailwind for Bitcoin.

3. The Fed's balance sheet

The Fed has been shrinking its balance sheet. It has been selling U.S. Treasuries it bought during the pandemic stimulus, such that it is effectively pulling money out of the system. Fewer dollars in circulation normally tightens financial conditions and cools off risk appetite.

On March 19, the Fed said it will reduce the speed of that runoff, cutting the monthly cap on Treasury reductions from $25 billion to $5 billion.

Reducing the pace at which dollars are vacuumed up leaves more liquidity sloshing around, and if heavy government borrowing continues, outright balance sheet growth could return before 2026.

Such a change would be akin to turning off the money vacuum, and then shortly thereafter turning on the money printer -- and Bitcoin loves it when the money printer is on.

4. Dollar funding costs

International money flows are also a key indicator to watch with Bitcoin, though they're a bit more complicated than the other mechanisms we've discussed so far.

At the moment, large multinational companies can borrow dollars and change them into euros at roughly a 2% discount, trimming their interest bills overnight. When money is that cheap, some of the spare cash often leaks into riskier assets, and a similar setup in late 2023 helped fuel an 80% Bitcoin rally.

Should the discount persist, it will be another tailwind for the coin.

How to invest based on this information

These four signals rarely flash bright green all at once.

Savvy investors should therefore build their Bitcoin positions slowly while enthusiasm is scarce, so they're already on board when liquidity gushes. Dollar‑cost averaging (DCAing) tiny weekly buys, even when headlines scream about tariff wars or election drama, helps neutralize any timing risk, so it's probably the best way to proceed here.

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Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.