Understanding the Impact of Net U.S. Liquidity on Technology Stocks and Cryptocurrencies 📈
Today, financial analyst Holger Zschaepitz emphasized the significant influence of net U.S. liquidity on growth-oriented assets like technology stocks and cryptocurrencies. Sharing a Bloomberg chart on social media, Zschaepitz highlighted the correlation between fluctuations in net U.S. liquidity and Bitcoin’s price movements over the past decade.
What Does Net U.S. Liquidity Mean?
Net U.S. liquidity refers to the available liquidity in the United States after considering all financial obligations. Factors like the Federal Reserve’s balance sheet activities, reverse repo agreements, and Treasury General Account balances contribute to this measurement. Essentially, net U.S. liquidity reflects the amount of ‘free’ money circulating in the economy that can be used for investments and spending without causing inflationary pressures.
The Impact of Net U.S. Liquidity on Risk Assets
- Risk assets, including volatile investment options like tech stocks and cryptocurrencies, are highly sensitive to changes in net U.S. liquidity.
- An analysis by Zschaepitz, supported by a Bloomberg chart, shows a clear correlation between Bitcoin and other assets with shifts in net U.S. liquidity.
- During periods of high liquidity due to expansive monetary policies, Bitcoin prices tend to increase. Conversely, liquidity contractions lead to price declines.
Examining Central Bank Policies
Central bank policies, especially those of the U.S. Federal Reserve, play a crucial role in shaping net U.S. liquidity. These policies determine the extent of liquidity-boosting or -draining actions, such as adjusting interest rates or changing the balance sheet size. Investors closely monitor these policy changes as they significantly influence the appeal and performance of risk assets.
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