Dear Readers,
When I joined The Bitcoin Layer two years ago, I knew why I owned bitcoin. What I didn’t understand was why its price moved on things that seemed to have nothing to do with it.
What I learned here is that despite what we believe about bitcoin’s place in the world, the market still treats it as a risk asset, which makes it very sensitive to Liquidity: how much money is sloshing around the financial system, and how easily it flows into assets like bitcoin. And because bitcoin trades 24/7, it’s often the first asset to react when those things change. It’s easy to sell bitcoin in the minutes after President Trump tweets that a “whole civilization will die tonight” but less so with real estate or other financial assets when the market is closed.
That’s why we built the TBL Liquidity Index. It combines bond volatility, interest rates, the strength of the dollar and global banking assets into one number, updated every day, that tells you whether liquidity conditions are getting better or worse for assets like bitcoin. On top of it, we built the TBL Liquidity Indicator, which flags the turns: a Red Dot 🔴 when Liquidity starts turning down, a Green Dot 🟢 when it starts turning up. The latest Red Dot marked a turn at the end of August, and we confirmed it as a Sell on September 11th.
And it has worked. Following those dots this year, buying bitcoin on a Green Dot and moving to T-bills on a Red Dot, would have you up 60.9% in 2026. Holding bitcoin the whole time, you’d be down 8%.
Find it in Pulse: TBL Liquidity tab → Performance → Bitcoin. Pulse and TBL Pro members can follow it live, and it updates every time we confirm a dot.
Then the last three weeks happened. Liquidity turned down, just as the Red Dot flagged: interest rates jumped, the dollar ripped higher, fear in the bond market spiked, and the index fell to its lowest point of the cycle. Yet bitcoin initially rose 12%, up 8% now. But look closer and you can still see Liquidity working against it: the rally hit a ceiling around $86,000 in late September and hasn’t broken through since.
So what’s going on?
Here’s the short version: Liquidity is the wind, not the engine. Bitcoin has its own engine too: its own buyers, its own sellers, its own cycle. For most of this year the wind was the stronger force, which is why following the dots worked so well. Over the last three weeks, bitcoin’s engine got stronger. The sellers who dumped in the first half of the year seem to be gone, and real buyers have stepped in. So bitcoin moved forward into the wind. But it hasn’t been able to run, and that’s the wind still doing its job.
To see both forces for yourself, I asked Nik and Augustine to walk me through it like I was new, and to show me where to look in TBL Pulse. Open Pulse and follow along: everything starts on the Home page.
When you first open Pulse, you’ll see both of our TBL Liquidity at the top of Home.
On the left, the TBL Liquidity Cycle: the bottom half is the Indicator, and the last dot on the line is our Red Dot. It sits at the end of August, where the turn happened. We confirm each dot about two weeks later, once we know the turn is real.
On the right, the TBL Liquidity Index. 50 is the line between expanding and contracting. On October 5th it fell to 52.5, still just above the line, but what matters is the direction, and it has been straight down for a month.
Right below the Indicator is the other force: Johan’s State Grid. It ignores macro entirely and asks two questions about bitcoin: is the trend up, and is it cheap or expensive compared to its own history?
This summer bitcoin sat in Capitulation, where the last sellers give up. It has since moved into Disbelief: still cheap, trend no longer falling.
The selling ran out. Bitcoin absorbed Strategy selling coins, $8.5 billion leaving the ETFs and the Coldcard hack, and by the July low bad news stopped pushing it lower. As James Check of Checkonchain put it on our show this week: “People who are going to hit the red button have done so.”
Then came the buyers. The rally since August is mostly real buying, and leverage has actually fallen since. More than 70% of bitcoin is now held at a profit, up from 45%, and those holders are more likely to buy the next dip than sell it. James called it a disbelief rally: “people simply can’t believe that the market’s going higher.”
That’s the engine starting up, and it’s why bitcoin could climb into the wind.
Augustine is now crossing our dots with the State Grid to see how the two forces interact. That work lives in the TBL Liquidity Daily Summary.
So why is Liquidity holding bitcoin back? Our Liquidity Index is built from four forces, and three of them are in the Top 10 Charts, further down Home.
The US economy is running hot. AI companies are spending enormous sums, inflation hasn’t cooled, and the war has pushed oil higher. Lenders demand more to lend, and the Fed followed with a quarter-point hike on September 16th. As Nik puts it, “rates lead the Fed.”
The 10-year yield is now 5.27%. Nearly every loan in the world is priced off it, so when it rises, money gets more expensive everywhere.
MOVE is the bond market’s fear gauge: what traders pay to protect themselves from big swings in Treasuries. It spiked as high as 113, including a jump of about 17 points on September 23rd alone. That matters because Treasuries are the collateral behind a huge share of the world’s borrowing. When their prices swing wildly, lenders trust that collateral less. They take bigger haircuts, lending less against each bond, and ask for more collateral to back each loan. So when debt rolls over, less money gets lent, and liquidity dries up. Nik calls this the main reason our signal turned red.
Higher rates and scared money both pull cash into dollars. The dollar climbed from about 98 to 102.3 in roughly a month, squeezing everyone around the world who borrowed in dollars. When the dollar rises, those borrowers suddenly owe more on their debt in their own currency, so they borrow less, spend less, and money gets tighter everywhere.
The other side of a strong dollar is a weak euro.
Scroll up to Nik’s Watchlist and find EUR/USD: around 1.12, after breaking below 1.14 in September. It’s the first number Nik checks these days, because Europe is where the stress is breaking open. French government bonds sold off hard enough that he called it a financial crisis, his first since Silicon Valley Bank in 2023.
Scroll back up to the section just above the Top 10, the TBL Liquidity Daily Summary, where today’s signal and bitcoin’s own cycle sit side by side.
Bond fear calms. MOVE (Top 10 #1) has already eased for a few days. Nik on Thursday: “maybe your sign that the worst of this bout of liquidity is behind us.”
The dollar tops out. The Dollar Index (Top 10 #2) stops making new highs, and the euro in Nik’s Watchlist stops falling.
Money comes back to bonds. Above 5%, Treasuries start to look like a good deal; Strive’s Matt Cole said his firm’s bond fund started buying the 10-year once it passed 5.25%. If buyers show up, yields fall and the yield curve steepens. That’s the 2s10s chart (Top 10 #5), the one Nik watches most. His line is 44 basis points, and it’s sitting at about 45.
When those turn, the index turns, and that’s where a Green Dot 🟢 comes from. That’s the moment we’re waiting for. Bitcoin’s engine is already running. If the wind shifts to its back, the thing holding it back goes away, and that’s when bitcoin can really run.
In Nik’s words: “we want to see liquidity turn green before we can really kick it into high gear.”
Every chart in this piece is in TBL Pulse and updates every day, so you can watch for the turn with us.
Open TBL Pulse
Thanks for reading,
Demian
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On Thursday, Nik and James from Checkonchain continued Nik’s discussion on bitcoin against today’s macro backdrop. They both give target levels for bitcoin’s price, and why we are seeing this divergence from a rather poor Liquidity outlook:
Nik recorded a video on Tuesday, walking viewers through our TBL Pulse dashboard. If you want a peek at what the TBL Pulse looks like, check out the video. He also discusses the divergence between Liquidity/macro and bitcoin:
Then, on Thursday, Nik walked through 16 of the charts he’s watching after bitcoin lost $82,700, from the 2s10s curve and the dollar to the French-German bond spread, now at its widest since the euro crisis:
Disclaimer
The TBL Model Portfolio, TBL Liquidity Indicator, and all TBL research outputs reflect Nik Bhatia and team’s analytical positioning for the macro and bitcoin environment. They are published for educational purposes only and are not investment advice, not a solicitation to buy or sell securities, and not a recommendation tailored to any individual’s portfolio. The Bitcoin Layer is not a registered investment advisor and does not manage client money. Please consult a professional financial advisor and conduct independent due diligence before making investment decisions.
