Net Liquidity: The Macro Signal That Moves Risk Assets
Net liquidity measures how much money is actively available in the US financial system after accounting for funds parked at the Federal Reserve or held in government accounts. The formula is: Net Liquidity = Fed Balance Sheet - RRP - TGA.
Since 2020, net liquidity has been one of the strongest correlates of Bitcoin price direction, often leading major moves by weeks. Macro analysts and automated trading systems track net liquidity because a single number captures the combined effect of Federal Reserve policy, money market dynamics, and Treasury spending patterns.
The Fed balance sheet peaked near $8.9 trillion in early 2022. The RRP peaked above $2.5 trillion in late 2022. The TGA fluctuates based on tax collection cycles and debt ceiling dynamics.