Indicator Overview

The Liquidity Correlation Index measures the rolling 90-day Pearson correlation between Bitcoin’s year-over-year (YoY) percentage price change and the YoY percentage growth in major stablecoin market capitalisation (primarily USDT and USDC). Values range from -1 (perfect negative correlation: stablecoin supply expands as Bitcoin falls) to +1 (perfect positive correlation: both move in lockstep), with optional EMA smoothing for clearer trend visibility. Displayed as a dynamic line with adaptive colorant of teal shades for negative correlation and dark charcoal for positive (stronger intensity at higher positives), overlaid with Bitcoin’s price on a secondary logarithmic axis and bounded by ±1 reference lines, this index reveals shifting relationships between BTC performance and crypto liquidity creation over multi-month horizons.

How To Use

Strong negative correlation (deep teal, below -0.5) signals stablecoin supply growing independently of or counter to Bitcoin price declines, often marking accumulation phases or “stablecoin overhang” where sidelined capital builds potential buying power for future rallies. Positive correlation (dark charcoal, above +0.5) indicates synchronised movements, rising stablecoin issuance fuelling Bitcoin gains or both contracting in risk-off environments, typically seen during mature bull or bear regimes. Crossings through zero highlight regime shifts: negative to positive may warn of diminishing liquidity support, while positive to negative can precede explosive upside as fresh capital decouples from price weakness. Traders use extremes for conviction in directional bets and smoothing options to filter noise. Investors interpret sustained negative readings as macro bullish for eventual risk-asset deployment and positive dominance as confirmation of trending cycles, making this a powerful tool for understanding liquidity-BTC intermarket dynamics and cycle transitions.