• This article discusses the use of net liquidity as a useful model to track both the S&P 500 Index and Bitcoin since March 2020.
• Net liquidity tracks changes in Federal Reserve Total Assets, U.S. Treasury General Account Balance, and Reverse Repo Facility.
• The Fed’s position of “higher for longer” may lead to a decrease in Net Liquidity, and the 200-day moving average can be used to observe market behavior.
Overview
This article discusses how net liquidity can be used as a useful model to track both the S&P 500 Index and Bitcoin since March 2020. It also looks at how Bitcoin has been acting as a liquidity sponge throughout its life, and how this has had an impact on its price trajectory. The article further considers the projected view of Core CPI at 3.5% for 2023, as well as recent events that have taken place in the bear market, such as the significant daily uptick in net liquidity after a period of historically low volatility.
Net Liquidity
Net liquidity is an original model developed by 42 Macro which tracks changes in Federal Reserve Total Assets, U.S. Treasury General Account Balance, and Reverse Repo Facility. A lower net liquidity translates to less capital available to deploy in markets, making it a key macro indicator when it comes to assessing current liquidity conditions and tracking how bitcoin trades in the market.
Fed’s Position
The Fed’s position of “higher for longer” may lead to a decrease in Net Liquidity unless there is an emergency policy reversal or spontaneous event that leads otherwise. This could be detrimental for bitcoin prices if investors are looking to sell at cost rather than stay with momentum given these circumstances; however, it is still unclear when overall liquidity will increase again en masse.
Realized Price
Price has broken above the short-term holder realized price only a few times during this bear market; however these events were short-lived due to the fact that this price reflects the average on-chain cost basis of more recent buyers – meaning it will be interesting to observe whether these buyers are looking to sell here or remain invested into bitcoin’s future potential gains regardless of current conditions or outlooks regarding net liquidity levels over time..
200 Day Moving Average
The 200-day moving average may seem somewhat arbitrary but can provide insight into current market behavior by indicating where prices stand relative strength wise since January 2021 compared with other points along this timeline — which has been proven useful when assessing bitcoin’s cyclical highs/lows since March 2020 onwards