• The article discusses how Bitcoin is following the increasing liquidity and balance sheets of global central banks, particularly those of Japan and China.
• The article also focuses on the Fed’s net liquidity indicator, which measures the difference in the Fed’s balance sheet and Treasury General Account plus Reverse Repo.
• All three metrics – Bitcoin, balance sheets, and liquidity – have seen increases from their respective bottoms in October 2022.

Overview

This article examines how Bitcoin is being impacted by global central banks‘ increasing liquidity and balance sheets, with a particular focus on Japan and China. It also looks at the Fed’s net liquidity indicator as a measure of this relationship.

Central Bank Balance Sheets

The orange line in the chart above shows that major central bank balance sheets have increased to 756 trillion since October 2022, when it was roughly 706 trillion. This increase has been driven by Japan and China continuing to expand their balance sheets despite high inflation.

Fed Net Liquidity Indicator

The red line in the chart shows the Federal Reserve’s net liquidity indicator, which measures the difference between its balance sheet and Treasury General Account plus Reverse Repo divided by units. All three metrics – Bitcoin, balance sheets, and liquidity – have seen increases from their respective bottoms in October 2022.

Bitcoin Impacted

As these global central bank balances continue to expand, they are offsetting quantitative tightening taking place elsewhere such as Europe, UK and US; this is having an impact on Bitcoin (the blue line) which has increased by around 50% year-to-date.

Conclusion

This article highlights how Bitcoin is being impacted by global central banks‘ increasing liquidity and balance sheets; with particular reference to Japan’s and China’s expansionary policies even amid high inflation levels. It also looks at the Fed’s net liquidity indicator as a measure of this relationship between Bitcoin prices and central bank balance sheets/liquidity levels across key countries worldwide.