Global Liquidity Updates

Trump was inaugurated today as the 47th President of the United States, marking his second, non-consecutive term.

In his speech, he hinted at potential tariff plans targeting certain countries, though details remain vague.

Combined with lower-than-expected inflation measures, this could drive the DXY into a relief rally to the downside, paving the way for other central banks to pursue further easing measures.

However, concerns remain over the new administration's policies, including the looming debt ceiling expected on January 21st and spikes in US repo rates - clear warning signs the Fed cannot afford to ignore.

Additionally, the Treasury's "extraordinary measures" and potential TGA drawdowns to address the debt ceiling could lead to significant liquidity injections in the coming weeks.

In China, the PBoC conducted its second-largest reverse repo injection, totaling a net of 958.4 billion RMB, to ease pre-Lunar New Year liquidity pressures.

President Xi Jinping indicated plans for further macroeconomic policies in 2025, though without downward pressure on the DXY from the US, it's unlikely China will take the first step.

That said, Q1 of 2025 is shaping up to be very positive.

Our Global Liquidity Index has started to pick up, showing a strong correlation with Bitcoin, as seen in the model we shared last week.

This week, our GLI rose by $2.745 trillion, representing a 2.20% increase.

While liquidity momentum remains weak, with the 3-month RoC still lagging behind the 12-month RoC, early signs are promising.

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More often than not, Bitcoin reacts to this Liquidity Power-Law level, typically leading to a correction.

Currently, this level stands at ~102.4k, with yesterday's close just above it.

This time, however, Trump is bull posting crypto, sending the entire market into a frenzy.

Arguably, a streak of bullish news is often followed by a local top and some choppy price action to shake out leverage entries.

Stay cautious - emotion-driven decisions rarely end well for your portfolio.

That said, from a fundamental perspective, a sustained close above this level is very bullish - a strong signal of what market participants could expect in the near future.

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Global liquidity has started inching higher.

Chart below is showing Bitcoin's correlation during the choppy market conditions from last year.

There is a noteworthy rise in liquidity since Monday, collateral values are improving and the RRP is approaching zero.

At the same time, the DXY is losing momentum, just after inflation data came lower than expected.

We don't think Trump would favor a strong dollar, as it raises costs across the board.

A stronger dollar makes manufacturing in the US more expensive, and it hurts exports.

Meanwhile, China is still holding back on major liquidity injections to keep the exchange rate with the dollar stable.

With that said, there is still a large amount of re-financing needed this year, which the FED will have to address.

For now, path towards higher liquidity looks promising.

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