87% correlation to global liquidity — comfort blanket or actual edge?

[DKeller]

I've been sitting with Raoul Pal's latest post (https://x.com/RaoulGMI/status/2081834392440225908) for a couple of days now. His argument, short version: BTC tracks global liquidity at 87% and the Nasdaq at 97%, and pretty much everything we obsess over day to day - earnings, the headline of the week, sentiment - is mostly noise. Price just follows how much money is in the system.

I've heard the liquidity thesis for years, and I don't dismiss it. What actually caught me this time is the forward-looking part. Interest payments on existing government debt are already locked in, and he claims liquidity follows them with roughly a three-year lag. If that holds, the current "cold" stretch where a lot of people are convinced something's broken is exactly what you'd expect, not a warning sign.

Where I get stuck is the other 13%. That gap is usually where people blow up their accounts, and correlations have a habit of breaking the moment you've built your whole thesis around them. The "Banana Zone" target of $250k-$450k sounds great too, right up until you're the one holding through the part of the chart that doesn't feel like a banana.

So I'll throw it to the room. Do any of you actually position around liquidity data, or is it more of a comfort blanket for sitting through drawdowns? And is Pal right that nothing's broken here, or is the liquidity framing just getting stretched to explain away a weak market?

[bitLeap]

So I'll throw it to the room. Do any of you actually position around liquidity data, or is it more of a comfort blanket for sitting through drawdowns? And is Pal right that nothing's broken here, or is the liquidity framing just getting stretched to explain away a weak market?

Bitcoin price rises = liquidity increases
Bitcoin price down = liquidity down
However, the reality is not that simple that why I agree with your last point that the role of liquidity frameworks is often overvalued. There are many other factors that we cannot ignore, such as institutional adoption of Bitcoin, regulation, and ETF capital flows. Almost any variable can trigger an unexpected event that is capable of rapidly changing the price trend. As a result global liquidity is not necessarily the "master key" in the current situation.

[DKeller]

So I'll throw it to the room. Do any of you actually position around liquidity data, or is it more of a comfort blanket for sitting through drawdowns? And is Pal right that nothing's broken here, or is the liquidity framing just getting stretched to explain away a weak market?

Bitcoin price rises = liquidity increases
Bitcoin price down = liquidity down
However, the reality is not that simple that why I agree with your last point that the role of liquidity frameworks is often overvalued. There are many other factors that we cannot ignore, such as institutional adoption of Bitcoin, regulation, and ETF capital flows. Almost any variable can trigger an unexpected event that is capable of rapidly changing the price trend. As a result global liquidity is not necessarily the "master key" in the current situation.

Fair point, and the ETF angle is probably the strongest counter to the whole thesis. That's genuinely new plumbing that didn't exist in the cycles Pal built his model on, so I'm wary of anyone backfitting a clean correlation over data that structurally changed halfway through.

Though to be fair to the liquidity crowd, they'd probably argue ETF flows are a liquidity expression - money looks for a home when there's more of it sloshing around. It's a bit of an "everything is liquidity if you squint hard enough" problem, which is exactly why the framework is hard to falsify.

For me it lands somewhere in the middle: liquidity sets the tide, but regulation and adoption decide which boats actually float on it. Treating one variable as the master key is how you get caught flat-footed when the thing you weren't watching moves the market.

[purple_sparkles]

We should always keep in mind that any investment asset can become illiquid or even completely non-liquid, or something unexpected may happen that prevents us from accessing or using it. Nothing in this world comes with a 100% guarantee. That's why concerns about liquidity can apply to virtually any asset.These are extremely turbulent times, and things can change from one day to the next. That's why it's always important to have a backup plan and diversify your assets. Diversification increases the chances that you'll be able to weather unexpected events and come out in a good position.