Fed liquidity (Net Liquidity) and Bitcoin

How to read it

Net Liquidity shows how many dollars the Fed actually leaves in the financial system. The Fed balance sheet grows when it buys bonds and shrinks when it sells them or lets them run off. Part of that money is parked, though: in the Treasury General Account (TGA) and in overnight reverse repo (RRP). Subtract those from the balance sheet and what remains is liquidity working in markets.

Rising Net Liquidity has historically coincided with rising risk assets — stocks and Bitcoin — and contraction with weakness. The link is neither instant nor rigid: BTC also moves on ETF flows, derivatives and news. Treat it as background, not a buy signal.

Fed purchases and “real QE”

The Fed can buy bonds to manage reserves — usually short T-bills — or to stimulate the economy (QE) — usually longer coupon securities. The first barely changes market conditions; the second does. So the “real QE” signal lights up only when 2 of 3 conditions hold: purchases above $30B over 30 days, a meaningful share of coupons, and Net Liquidity rising 4 weeks in a row.

How it is calculated

Formula: Net Liquidity = WALCL − WTREGEN − RRPONTSYD × 1000 ($M). WALCL is total Fed assets, weekly as of Wednesdays; WTREGEN is the Treasury General Account; RRPONTSYD is overnight reverse repo ($B, daily, taken on the same Wednesday); WRESBAL is bank reserves. Data from FRED; the Fed H.4.1 report comes out on Thursdays at 4:30 PM ET. Fed purchases are actual New York Fed operations. Updated daily.