Bitcoin Acts as Liquidity Indicator for Central Bank Balance Sheets

• Bitcoin is acting as a liquidity indicator for central bank balance sheets, as central banks are trying to reign in inflation by decreasing their balance sheets and increasing interest rates.
• The central bank balance sheet of the US, Japan, UK, China, and Europe amounts to $760T, down from $800T back in May 2022.
• Bitcoin value increases as central banks have to increase their balance sheet due to being on a credit-based system, i.e., the need for perpetual growth.

As the world grapples with rising inflation, central banks across the globe are attempting to reign in the problem by decreasing their balance sheets and increasing interest rates. This has resulted in a decrease in the central bank balance sheet of the US, Japan, UK, China, and Europe, down from $800T back in May 2022 to $760T at present.

This decrease has been accompanied by a rise in the price of Bitcoin, acting as a liquidity indicator for central bank balance sheets. Many narratives have been developed over the years for Bitcoin, one being an inflation hedge and another a liquidity hedge. As central banks are on a credit-based system, they need to increase their balance sheets in order to remain viable. This increase is directly reflected in the increase in Bitcoin value, as the cryptocurrency is seen to move on the expansion of credit on balance sheets.

James Van Straten, Research Analyst at CryptoSlate, commented, “These movements of Bitcoin are significant to witness, as they are a direct reflection of the increase in credit expansion on balance sheets.” Van Straten is passionate about data, technology, and identifying trends, and is a freedom and technology maximalist, seeing Bitcoin as the greatest invention of the 21st century.

It appears that Bitcoin is acting as a reliable indicator of liquidity for central bank balance sheets, and this is likely to be the case for the foreseeable future. As central banks continue to attempt to control inflation by decreasing their balance sheets and increasing interest rates, Bitcoin value is likely to increase in tandem. This will provide investors with a reliable indicator of the state of central bank balance sheets, as well as an inflation hedge and liquidity hedge.