What this shows
"Bitcoin follows liquidity" is one of the most repeated ideas in crypto markets. A popular way to measure that liquidity is Fed net liquidity:
Net liquidity = Fed balance sheet − Treasury General Account − overnight reverse repos
- The Fed balance sheet (total assets) grows when the Fed buys bonds (QE) and shrinks when it lets them run off (QT).
- The Treasury General Account (TGA) is the government's account at the Fed. When the Treasury raises cash and parks it there, that money leaves the banking system.
- Overnight reverse repos are cash that money-market funds park at the Fed. That too is money sitting idle rather than in markets.
All three series are from FRED and update weekly. The balance sheet and the TGA are Wednesday figures published on Thursday, so in our market outlook a reading only counts from the day after it appeared.
How to read the tests
Both net liquidity and Bitcoin rose over the long run, so a chart of the two levels looks convincing almost by construction. The "levels" correlation in the table is high for that reason and proves little. We look at changes instead:
- Weekly changes: across the full history, weekly moves in net liquidity and in Bitcoin are not related in any measurable way. The correlation sits inside the noise band.
- The lead test groups weeks by how net liquidity changed over the previous 13 weeks and looks at Bitcoin over the next 13. Here a pattern does appear: after liquidity shrank by more than 2%, Bitcoin's next quarter was on average flat to negative; after it grew by more than 2%, the median quarter was clearly positive. The same order holds since 2020.
Windows overlap, so there are far fewer independent periods behind each row than weeks (the ≈ figure). Liquidity is one input among many, not a timing tool.
Compare this page with M2 money supply, a slower and broader measure of money, and with the dollar index.
FAQ
What is Fed net liquidity today? The current figure and its 13-week change are in the headline and the first card above, updated daily from the weekly Fed data.
Why subtract the TGA and reverse repos? Both are cash held at the Fed rather than in banks and markets. When the Treasury fills its account or funds park cash in reverse repos, money is drained from markets even if the balance sheet stays the same.
Does Bitcoin follow Fed liquidity? Week to week, no measurable link shows up. Over a quarter, Bitcoin has tended to do worse after net liquidity shrank and better after it grew, but with many exceptions and few independent periods.
How is this different from M2? M2 counts money held by households and businesses: cash, deposits and money-market funds. Net liquidity tracks reserves the Fed supplies to the financial system. It moves faster and is closer to what traders mean by "liquidity".