Bitcoin is acting as a liquidity indicator for central bank balance sheets

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Quick Take

  • As the glob­al world is fac­ing extreme infla­tion, cen­tral banks are try­ing to reign in infla­tion by decreas­ing their bal­ance sheets (quan­ti­ta­tive tight­en­ing) and increas­ing inter­est rates.
  • The blue line con­sid­ers the cen­tral bank bal­ance sheet of the US, Japan, UK, Chi­na, and Europe, which amounts to $760T. Down from $800T back in May 2022.
  • The red line sym­bol­izes the net liq­uid­i­ty, which equals the Fed’s total assets (Trea­sury + Reserve Repo).
  • The orange line is the price of Bitcoin.
  • Many nar­ra­tives have been devel­oped over the years for Bit­coin, one being an infla­tion hedge and anoth­er a liq­uid­i­ty hedge.
  • As cen­tral banks have to increase their bal­ance sheet due to being on a cred­it-based sys­tem, i.e., the need for per­pet­u­al growth, BTC moves on cred­it expan­sion on bal­ance sheets, which is seen with its lat­est uptick in price. These move­ments are sig­nif­i­cant to witness.
Bitcoin and Balance sheet: (Source: Trading View)
Bit­coin and Cen­tral Bank Bal­ance sheet: (Source: Trad­ing View)

The post Bit­coin is act­ing as a liq­uid­i­ty indi­ca­tor for cen­tral bank bal­ance sheets appeared first on Cryp­toSlate.

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