What is Net Liquidity?

Anyone following macro and crypto sooner or later comes across the term Net Liquidity. It refers to a simple calculation that tries to make an elusive quantity measurable: how much liquidity the US central bank actually provides to the financial system.

The formula

Net Liquidity combines three publicly available series, all accessible via FRED:

• Fed total assets (WALCL): everything the Federal Reserve holds – mainly Treasuries and mortgage-backed securities.
• Treasury General Account (TGA): the US Treasury's account at the Fed. Money held here does not circulate in the banking system.
• Reverse repo (RRP): funds that money market funds and banks park overnight at the Fed. This money is also temporarily "parked".

The calculation is: Net Liquidity = Fed balance sheet − TGA − RRP.

Why subtract TGA and RRP

The Fed's balance sheet alone only tells you how much money the central bank has created. Part of it, however, sits in accounts where it isn't used for loans, investment or asset purchases. If the TGA rises because the Treasury collects taxes or issues bonds, liquidity is drained from the system – even though the Fed's balance sheet is unchanged. Conversely, a falling reverse repo balance can release liquidity even while the Fed shrinks its balance sheet.

Net Liquidity therefore tries to capture the money that is actually "in circulation".

What the metric shows – and what it doesn't

In recent years, Net Liquidity and the prices of risk assets such as equities or Bitcoin moved in a similar direction over long stretches. That made the metric popular. But keep in mind:

• Correlation is not causation. Moving together does not mean one reliably determines the other.
• The relationship is not stable. There have repeatedly been months in which the two diverged clearly.
• The data is lagged. The Fed balance sheet is published weekly, TGA and RRP daily. Combining them requires aligning dates carefully.
• It is a US view. The ECB, the Bank of Japan and other central banks also influence global liquidity.

Net Liquidity is therefore most useful as context: it describes the environment markets move in – not what a single price will do next.

How to read the metric

Three questions help:

• Direction: Is Net Liquidity rising or falling over recent weeks?
• Pace: How large is the change compared to history? A $100 billion move in four weeks is different from a $10 billion wobble.
• Driver: Does the move come from the Fed balance sheet itself, from the TGA or from the reverse repo? A rising TGA around tax dates is often seasonal.

Net Liquidity in CryptoVerified

In the app you'll find Net Liquidity in the macro section. In Simple you see a traffic light and a sentence, such as "Liquidity has been rising for four weeks". In Expert you see the raw values of all three components, the change over flexible time ranges, a z-score compared to history and the formula. You can also overlay global liquidity from the Fed, ECB and Bank of Japan.

Conclusion

Net Liquidity is a simple, transparent calculation from public data. It helps you understand whether the monetary environment currently provides more of a tailwind or a headwind. It is not a tool for predicting prices – and should always be viewed alongside other data.

This article is for educational purposes only and does not constitute investment advice.