Insights

Bitcoin as an indicator for global liquidity, balance sheet growth

Quick Take

  • Many narratives have been attached to Bitcoin, such as an inflation hedge, but one emerging since covid is a global liquidity indicator or the expansion/contraction of balance sheets.
  • The net liquidity indicator we covered in previous insights has grown YTD; Bitcoin has highly correlated with this indicator for the past year.
    net_liquidity = (fed_bal – (tga + rev_repo))
  • While the balance sheet of the four largest central banks accumulatively has increased this year, this includes Japan, Europe, China, and U.S., from $25.6 trillion to $26 trillion.
  • For all the work the ECB and Fed are attempting to do with quantitative tightening is being offset by the balance sheet growth of China and Japan.
  • Dwindling order book depth raises liquidity concerns in crypto markets, which could push prices violently to the up or downside.

Balance sheet, liquidity and BTC: (Source: Trading View)
Balance sheet, liquidity, and BTC: (Source: Trading View)

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button