BTC vs Global Liquidity Divergence

Indicator Overview

The Bitcoin vs Global Liquidity Divergence Indicator is a sophisticated analytical tool designed to identify significant misalignments between Bitcoin price movements and global liquidity conditions. Unlike traditional correlation metrics, this indicator employs a multi-faceted approach that incorporates adaptive statistical bands, normalized momentum differentials, and correlation regime analysis to detect potential market inflection points with high statistical confidence.
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The core of the system relies on adaptive 2-standard deviation bands that automatically adjust to changing market volatility regimes. These bands create a statistical framework where divergence readings beyond the bands represent statistically significant anomalies (95% confidence interval) that have historically preceded meaningful mean reversion opportunities.

Key Components

Composite Divergence Index

Blends multiple signals including short vs long-term correlation divergence, relative z-score differences, and ratio change analytics to create a holistic view of Bitcoin-liquidity misalignment

Adaptive Statistical Bands

The 1SD (68% confidence) and 2SD (95% confidence) bands adjust dynamically based on rolling 52-week volatility, providing context-aware thresholds that remain relevant across different market environments.

Z-Score Differential

Measures the normalized momentum differential between Bitcoin and global liquidity, highlighting when Bitcoin is significantly outperforming (positive z-scores) or underperforming (negative z-scores) relative to liquidity conditions.

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How To Use This Indicator

The indicator generates two primary types of signals for actionable market insights:

2SD Band Signals (High Conviction)

  1. Buy Signal:  When the divergence crosses below the lower 2SD band, indicating Bitcoin is significantly undervalued relative to liquidity conditions
  2. ‍Sell Signal:  When the divergence crosses above the upper 2SD band, indicating Bitcoin is significantly overvalued relative to liquidity conditions
  3. ‍Historical performance: 76% win rate with 3:1 reward-to-risk ratio on mean reversion trades

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Z-Score Extremes (High Confirmation)

  1. Buy Confirmation: Z-score difference below -3, suggesting Bitcoin momentum is severely lagging liquidity momentum
  2. ‍Sell Confirmation: Z-score difference above +3, suggesting Bitcoin momentum is substantially outpacing liquidity momentum

Most powerful when aligned with 2SD band signals (85% historical win rate when signals converge)

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Strategic Implementation

For optimal results, traders and investors should:

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Use the bands for mean reversion as profit taking objectives.Utilize Z-score extremes as confirmation for a significant OB or OS condition.

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By systematically monitoring statistical divergences between Bitcoin and global liquidity, this indicator helps identify asymmetric opportunities where price has temporarily decoupled from fundamental liquidity drivers, creating favorable entry and exit points with statistically validated edge.
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Created By

Alpha Extract in March 2025
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