
Current US Liquidity Signal: Bearish 📉
26-Week Liquidity Signal vs 12-Week Bitcoin Returns
Understanding the US Liquidity Signal
The US Liquidity Signal measures 26-week changes in bank deposits with the Federal Reserve (bank reserves + other deposits). This momentum-based indicator captures the rate of liquidity expansion or contraction in the financial system.
- Very Bullish (+$308B+): Rapid liquidity expansion historically associated with strong Bitcoin rallies. Average 12-week returns: +9.1%, Win rate: 76%
- Bullish (+$106B to +$308B): Moderate liquidity expansion creating favorable conditions for risk assets
- Neutral (-$29B to +$106B): Stable liquidity environment with mixed directional signals
- Bearish (-$250B to -$29B): Liquidity contraction creating headwinds for risk assets
- Very Bearish (<-$250B): Rapid liquidity drainage historically correlated with Bitcoin weakness. Average 12-week returns: -1.5%, Win rate: 36%
Signal categories are based on quintile analysis of 1,382 observations from 2020-2025. The data-driven thresholds create balanced categories with each representing ~20% of historical observations, showing a statistically significant 10.6% performance spread between extremes. The liquidity signal includes WRBWFRBL - Reserve Balances with Federal Reserve Banks (Wednesday Level) and WLODLL - Other Deposits Held by Depository Institutions (Wednesday Level).
Current US Liquidity Levels
Understanding Liquidity Level Evolution
This chart shows absolute liquidity levels alongside Bitcoin price, revealing the relationship between liquidity in the US financial system and Bitcoin's price movements.
- Liquidity Peaks: Often coincide with major market tops as excess liquidity flows into risk assets
- Liquidity Troughs: Typically mark market bottoms as reduced liquidity creates selling pressure
- Trend Changes: Inflection points in liquidity levels often precede major Bitcoin price movements
The combination of absolute levels and momentum (26-week changes) provides a comprehensive view of liquidity conditions and their potential impact on Bitcoin.
Comprehensive Guide to US Liquidity Analysis
What is the US Liquidity Signal?
The US Liquidity Signal combines Reserve Balances with Federal Reserve Banks and Other Deposits Held by Depository Institutions to measure the total "core liquidity" available in the US financial system. The 26-week momentum calculation captures the magnitude of change rather than absolute levels.
Why Liquidity Momentum Matters for Bitcoin
Bitcoin has historically shown strong correlation with liquidity conditions. Understanding these patterns helps traders and investors:
- Anticipate macro trends: Liquidity expansion often precedes Bitcoin rallies
- Time market entries: Very Bullish signals provide optimal entry opportunities
- Manage risk: Very Bearish signals suggest defensive positioning
Practical Applications
For Long-Term Investors
Very Bullish liquidity signals historically offer excellent entry opportunities for building long-term Bitcoin positions, with 76% win rates and +9.1% average 12-week returns.
For Active Traders
Signal transitions provide key inflection points. Monitor for category changes, especially moves into Very Bullish or Very Bearish territories.
For Risk Managers
Very Bearish signals historically show only 36% win rates with -1.5% average returns, suggesting reduced position sizing or hedging strategies.
Key Insight
The US Liquidity Signal provides early warning of changing macro conditions. While not perfectly predictive, the clear monotonic relationship between liquidity momentum and Bitcoin performance (10.6% spread between extremes) makes it a valuable tool for understanding the macro backdrop driving Bitcoin's price action.