Crypto, Gold and Bonds
Global Liquidity Still Dominates
Global Liquidity, measured on our full-sample basis and expressed in US dollars, continues to reach new all-time highs. Admittedly, and contrary to our expectations at the start of the year, the cycle has extended far longer than we anticipated. This report argues that while the level of liquidity may still be abundant, the collateral system through which that liquidity is transmitted is becoming progressively tighter.
Two factors largely explain this resilience. First, Federal Reserve tightening has proceeded at a relatively measured pace. Second, governments have increasingly monetised public debt through mechanisms such as “Treasury QE”, whereby Treasury bill issuance effectively channels liquidity into private markets.
The consequences for liquidity-sensitive assets have been unmistakable. Both the NASDAQ and Bitcoin have benefited from this powerful liquidity tailwind. The chart below illustrates the close relationship between the six-week rate of change in Global Liquidity, advanced three months, and the corresponding move in Bitcoin (BTC$).