Global Liquidity Index (GLI)
- GLI up = bullish for crypto, possibly neutral or slightly bullish for gold (inflation hedge).
- GLI down = bearish for crypto, bullish for gold (safe haven).
The GLI aggregates major central bank balance sheets worldwide, converted to USD for consistency and expressed in trillions. It adjusts the U.S. Federal Reserve’s balance sheet by subtracting the Treasury General Account (TGA) and Reverse Repurchase Agreements (RRP) for a clearer view of U.S. liquidity. Users can customize which central banks and accounts to include.
Formula:
GLI = FED – TGA – RRP + ECB + PBC + BOJ + BOE + BOC + RBA + RBI + SNB + CBR + BCB + BOK + RBNZ + Riksbank + BNM
Key Features:
Includes only central banks with reliable data since 2007 and no currency pegging.
- Provides a snapshot of global liquidity to interpret macroeconomic trends.
- Helps assess policy direction, economic climate, and asset pricing.
- Rising liquidity historically benefits riskier assets (e.g., small caps, crypto).
- Investors should be cautious unless liquidity shows a sustained upward trend.
1. When the Fed Lowers Rates
Lower interest rates make borrowing cheaper.
This reduces the cost of capital for businesses and investors.
It also makes safe assets (like bonds) less attractive because their yields drop.
2. Impact on Liquidity
Lower rates often accompany Quantitative Easing (QE) or other liquidity injections.
The Fed buys securities, pushing cash into the financial system.
Banks and investors suddenly have more cash and cheaper credit.
3. Investor Behavior
With excess liquidity and low yields on safe assets, investors seek higher returns.
This creates a risk-on environment, where capital flows into:
- Equities (especially small caps)
- Commodities
- Cryptocurrencies
4. Why Crypto Benefits
Crypto is considered a high-risk, high-reward asset.
Extra liquidity + low rates = more speculative investment.
Historically, Bitcoin and altcoins surged during periods of:
- Fed rate cuts
- Balance sheet expansion (QE)
Gold’s Relationship to Liquidity
Gold is considered a safe-haven asset, not part of GLI.
When liquidity expands (GLI up):
Investors often favor risk assets (stocks, crypto) over gold.
Gold may still rise if expansion signals inflation fears.
When liquidity tightens (GLI down):
Risk assets fall, and investors move to safe havens like gold.
Gold often benefits during risk-off periods.