- As the global world faces extreme inflation, central banks attempt to control inflation by shrinking their balance sheets (quantitative tightening) and raising interest rates.
- The blue line looks at the balance sheets of the central banks of the US, Japan, UK, China and Europe, which stands at $760,000. Down from $800,000 in May 2022.
- The red line symbolizes net liquidity, which is equal to total Fed assets (Treasury + Reserve Repo).
- The orange line is the Bitcoin price.
- Many narratives have been developed over the years for Bitcoin, one being an inflation hedge and another a liquidity hedge.
- While central banks need to expand their balance sheets due to a credit-based system, i.e. the need for perpetual growth, BTC moves on credit expansion on balance sheets, which can be seen with its latest price hike. These movements are significant to see.
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