Global Liquidity: How to Read the Market’s Hidden Tells

Hermetica
2 min readDec 19, 2023

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Have you ever wondered if there’s an indicator that can reliably forecast market movements, particularly for assets like Bitcoin and gold?

Turns out, there may be.

We keep a close eye on the Bitcoin spot price and volatility levels as they directly influence how our vaults and strategies operate in various market regimes.

Another metric we pay close attention to is Global Liquidity.

Global Liquidity compromises:

  1. Central bank interventions
  2. Bank and shadow bank credit, corporate cash flow, collateral-based wholesale, and repo market activity
  3. Net foreign flows.

Global Liquidity, simply put, is the flow of cash and credit throughout the international financial system.

It’s important to note that Global Liquidity does not equate to money supply. Money supply is merely a subset of Global Liquidity which is better understood as a wholesale measure that starts where conventional definitions of money (i.e. retail bank deposits) end.

Interestingly, Global Liquidity has a significant correlation (0.8 factor) with global asset prices. This means that changes in Global Liquidity can be a useful leading indicator for asset price movements.

When you compare the various assets against Global Liquidity data, Bitcoin and gold have the highest correlation.

Gold (and Crypto), Global Liquidity, & US CPI Index — source: https://twitter.com/crossbordercap/status/1731933408442384815

Turns out that both gold and Bitcoin are excellent monetary inflation hedges.

When Global Liquidity increases (when more money enters the financial system) the prices of both gold and Bitcoin go up. Think of Bitcoin as “exponential gold” — it mirrors gold’s movements but with stronger correlation and higher upside volatility.

For traders, investors, and DeFi protocols like us understanding the relationship between Global Liquidity and asset prices is crucial. It’s a powerful tool to anticipate market trends and make informed decisions.

Balance sheet capacity changes of the biggest financial institutions in the world are what move the market.

Finding accurate Global Liquidity data can be challenging. Thankfully, there are reliable sources that exist today. That’s where organizations like Crossborder Capital come in.

Crossborder Capital is dedicated to providing in-depth insights into Global Liquidity. Their team meticulously aggregates data from over 90 economies worldwide to gain a comprehensive understanding of the changes in balance sheet capacity of the global financial system.

By keeping track of Global Liquidity, you can gain a deeper understanding of the market and position your portfolio to profit from it.

To delve deeper into this topic, check out Crossborder Capital’s Substack, ‘Capital Wars’.

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Hermetica

The first Bitcoin-backed, yield-bearing synthetic dollar protocol.