Liquidity is drying up, the era of bonds is over: what this means for bitcoin
Financial markets are experiencing a tectonic shift that could fundamentally change the rules of the game for all asset classes, including Bitcoin. Two independent analytical signals indicate that the familiar investment model based on cheap money and constant bond growth is coming to an end. This creates both short-term risks and long-term opportunities for cryptocurrencies.
The Disappearance of "Excess" Money
The first and most alarming signal is the state of liquidity in the global financial system. My analysis shows that the excess liquidity indicator, calculated as the difference between the growth rate of the money supply, inflation, and economic growth, has turned negative for the first time since 2021. Historically, it is precisely this "residual" liquidity that has fueled the growth of stock markets and risk assets. Now it has vanished.
When this indicator turns negative, money typically begins to flow from stocks into more defensive instruments, such as long-term bonds. The yield curve flattens, which has historically preceded a weakening of stock returns over the next 3–6 months. Notably, the market itself has been pricing in this tightening throughout the year, with the Federal Reserve merely "catching up" through its rhetoric.
The Forty-Year Bond Bull Market Is Over
The second, even more fundamental shift concerns the bond market. Since 1981, when yields on long-term U.S. government bonds reached 14%, a 40-year trend of declining rates began, ending at the zero mark during the COVID-19 pandemic in 2020. It was then, at the moment of massive liquidity injections to save the economy, that this historic bond bull market quietly concluded.
Now the trend has reversed. In the new reality, passively owning "the entire market" will no longer yield easy profits. Valuation, balance sheet quality, and real cash flow come to the forefront. In my estimation, at current multiples, the return on the S&P 500 index over a ten-year horizon could be near zero. This makes the market an ideal environment for active management and the search for alternatives.
Risk and Opportunity for Bitcoin
For Bitcoin, these signals carry a dual nature. The short-term risk is obvious: as a risk asset highly sensitive to liquidity, BTC could come under pressure alongside overvalued stocks. If "free money" disappears, a correction in risk assets, including cryptocurrencies, becomes more likely.
However, there is also a flip side. If the old "buy and hold the index" model stops working and bonds lose their safe-haven status, some capital may begin seeking refuge outside traditional markets. In such a scenario, Bitcoin could compete for a role as one of the assets of a new era. But this will not happen immediately and is far from guaranteed. The market is now entering a phase where only the strongest and most adaptive strategies survive.
Expert opinion: The disappearance of excess liquidity is a "moment of truth" for Bitcoin. If it can hold above key support levels amid tightening conditions, it will be a powerful signal of its maturity as a safe-haven asset. If not, we face another stress test for the entire crypto market.