• This article discusses the increasing balance sheets of major central banks, such as the US, EU, UK, Japan and China.
• It also looks at the net liquidity indicator and Bitcoin’s price movements in relation to these metrics.
• It concludes that despite high inflation, central bank balance sheets are expanding and this is having a positive impact on Bitcoin prices.
Balance Sheets Expanding
The global economy is facing extreme inflation, causing central banks to take action by decreasing their balance sheets (quantitative tightening) and increasing interest rates. Japan and China have continued to increase their balance sheets despite this high inflation, which is counteracting efforts taken by other countries such as the US, EU and UK.
Bitcoin Price Movement
Bitcoin has seen an increase of roughly 50% year-to-date due to the expansion of major central bank balance sheets. A Fed net liquidity indicator has also increased from its October 2022 bottom in relation to this trend.
Major Central Bank Balance Sheets
The aggregated central bank balance sheet for major economies including the US, EU, UK, Japan and China has increased from 706 trillion to 756 trillion since October 2022. Despite high inflation levels across global markets these countries have maintained an upward trajectory in terms of their balance sheet expansion.
Net Liquidity Indicator
The Fed net liquidity indicator formula is calculated by subtracting Treasury General Account plus Reverse Repo from a Fed Balance Sheet then dividing it by units; this metric has also seen an increase since October 2022 bottoms alongside bitcoin prices.
In conclusion it appears that major central banks are expanding their balance sheets despite global economic conditions causing high levels of inflation; furthermore this expansion seems to be positively impacting Bitcoin prices which have risen 50% year-to-date. The Fed’s net liquidity indicator further supports this trend with both metrics seeing an increase from October 2022 bottoms.