When Our Liquidity Signal Is Strongest, and When It Isn’tUS rates continue to skyrocket, and some important and signal-worthy adjustments to our TBL Liquidity Indicator
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If you’re ready to sign up now, use code TBL for $50 off at sign-up Dear Readers, I don’t think we can delay this any longer: we need a “Nik Bhatia Travels Indicator” because I swear his timing is impeccable. As Nik set course for DC to speak about the Eurodollar at the Bitcoin Policy Institute’s Freedom Tech Summit this week (link to his speech here - timestamp 5:40:30), the bond market decided to have a historical vol day on Wednesday:
The one-day change in the MOVE Index (one of our most important Liquidity pillars) rose by nearly 17 index points, which is a 4.1-sigma event in the land of bond volatility:
You can imagine what an event like this did to our TBL Liquidity Index… We wrote this at the start of the week, and we're writing it again here. We are simply not in an ideal short-term Liquidity environment, evidenced by the short-term 30-day cycle of our Liquidity Index (i.e., our Indicator), despite the short burst of strength we witnessed from bitcoin this month: Whatever support we thought US Treasuries might find has been nowhere in sight. My base case going into this latest Liquidity Red dot was:
The path upward in yields so far appears to be all but gentle…
The elevated vol across the curve came soon after something we’ve never considered a market-moving economic print: the S&P Global PMI. Both the overall PMI composite and the manufacturing PMI came out much stronger than expected, up to record-high levels:
…this, alongside fuel-driven inflation from the war, and an interesting proposition for banning diesel exports to keep the domestic market well supplied amidst a cost-of-living crisis going into the midterms (which ignores the fact that the US is a net exporter of fuel products)...
…has added fuel to the fire in USTs (no pun intended). I would argue that high yields can lure in some dip buyers. After all, we are now at 5.2% on the 10Y part of the curve, which sounds like a fairly decent income if you ask me.
However, the capital losses are happening so fast right now that the carry (i.e., the income you earn by holding the 10Y note) cannot practically work as a cushion. Yes, a 5.2% yield looks very appetizing, but it doesn’t do much when you are capitalizing losses quickly. The latest 10Y issue has experienced a near 40bp yield increase since its auction just two weeks ago, which roughly translates into a capital loss of some 3.1% since issuance…not ideal. From a TBL Liquidity perspective, this massive dip in our Index sets the floor for a mathematical Green Dot in mid- to late-October (assuming, of course, vol doesn’t keep having more 4-sigma events). And a Green Dot for bitcoin in the current environment doesn’t sound too bad…at least from a historical perspective. Allow me to explain… TBL Liquidity + Johan’s State Grid StudyInsofar as bitcoin goes, over the past couple of weeks, our latest Red Dot removed our exposure to bitcoin, which resulted in a costly 10% miss from the run-up. As explained earlier this week, we’ve experienced 10% misses before (one happening in April of this year), but complacency is not something we value. Given that miss, and the fact that our TBL Liquidity index contains absolutely zero bitcoin metrics (which is an impressive feat when considering how well our Indicator has performed with bitcoin YTD), we thought it a good idea to further study our Indicator’s performance in bitcoin by adding ALL THINGS BITCOIN into our Green and Red Dot calls. In comes Johan’s State Grid: The idea here is to not change anything about our Liquidity model, but instead look at our dots within different bitcoin regimes, and see just how well each dot performs respectively. This will ultimately help us give you, the Reader, some confidence when thinking about the bitcoin signal that a Green or Red dot provides. What we are sharing today are some early results and observations. Lots to study still, but we’re closing in on better accuracy and higher confidence. Note: All of these numbers are from our “perfect timing” theoretical work, meaning that they do not include the real-time lag we experience when confirming a dot. Cross-TabulationHere’s another look at our Indicator, with its Green and Red dots:
The charts below showcase all of our ‘perfect timing’ Green and Red dots on bitcoin since 2015. Starting with Green dots from our Indicator, notice how most bitcoin trades are skewed to the right, with all average and median observations yielding a positive return on the trades:
Meanwhile, on the Red dots chart, we see bitcoin trades mostly anchor closer to low positive or outright negative returns…just compare medians across the board:
Further, notice the patterns that emerge. At the RECOVERY quadrant on Johan’s grid (roughly where we are today), no Green dot has ever missed for bitcoin, which increases our confidence in the success of any Green dots that may appear soon. Similarly, Red dots in the RECOVERY quadrant, which is where our most recent Red dot was born, perform poorly for bitcoin. The median return for each Red dot trade born in RECOVERY is 3.1% (a.k.a., a miss). We compile a table at the very end of the article with some important observations for each one of these regimes and their corresponding Green or Red dots. Calls Over TimeSomething else you’ll notice is our historical “hit rate” (that is, how many times a Green dot is actually followed by “bitcoin up,” and a Red dot by “bitcoin down”) is a lot more successful with greens than with reds. That is, Green dot calls are simply a lot better than Red dot calls. Which makes sense. Jack Farley and his technical analyst guest, Milton Berg, said it best here: It is “easier to call market bottoms than market tops,” and we won’t pretend we are better than the phrase. On a different note, bitcoin (and markets in general) are never static. The pre-2020 era is not the same as the post-2020 era. So, it is also worth noting the success of our calls over time. Take a look:
Notice how the rolling 20-leg hit rate (bottom pane) has increased over time, reaching nearly 80% at the start of this year, explaining our outsized returns in bitcoin so far, despite bitcoin still being in the red for 2026. Now take a look at our hit rate for Green and Red dots when split into pre-2020 to post-2020 periods:
For Green dots, our hit rate increases from 58% to 69%, while for Red dots, our hit rate increases by 17 points from 35% to 52% (though the Red dot hit rate remains functionally low, not that much better than a coin flip, it's still great to see it improve). So, generally speaking, our confidence in each Green or Red dot in bitcoin has increased over time (especially post-2020), but to improve our confidence (and make our Indicator more bitcoin-centric without changing the underlying Liquidity components), we will incorporate Johan’s state grid to guide the confidence in our Green or Red dot calls. The Table (for now):Here’s a grid that we will use from here on out to help us guide our confidence in each dot (in bitcoin):
One last note: we understand this grid does not reflect Johan’s newest chart (which has a lot more zones); however, splitting the grid into that many different sections would lead to fewer trade observations in each zone, leading to inconclusive results. Thus, we use Johan’s older grid for now. This approach might appear complex, but we will be working on boiling down the signal and present the information to you in TBL Pulse as soon as we can. Substack This Week
YouTube This WeekLastly, Nik discussed bitcoin’s latest run-up to $87K at the start of the week: 
And then followed it up with his interview with James Van Straten to close out the week: 
For Podcast ListenersOur videos are on major podcast platforms—take us with you on the go! Keep up with The Bitcoin Layer by following our social media! 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. Thanks for reading The Bitcoin Layer — for access to all content, upgrade to paid!
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