Liquidity running out: why the end of the bond era threatens Bitcoin
The U.S. financial system is sending alarming signals that directly impact the cryptocurrency market. Two independent analysts agree: we are witnessing a fundamental shift that calls into question the continued growth of risk assets, including Bitcoin. This is not about a temporary correction, but a structural change—the depletion of excess liquidity and the end of a 40-year bull market in bonds.
The excess liquidity indicator in the financial system has turned negative for the first time since 2021. This metric is calculated as the difference between the growth rate of the money supply, inflation, and economic growth. This surplus has traditionally fueled stock markets. Now it is gone. When liquidity turns negative, capital begins to flow from stocks into long-term bonds, which historically has led to a weakening of risk asset returns over the next 3–6 months.
Market valuations are currently at extreme levels. Stocks are expensive relative to bonds in a way that has occurred only 5% of the time over the past half-century. Ironically, retail investors continue to actively buy stocks—inflows into U.S. equity exchange-traded funds posted the second-largest weekly result in history. The money that typically supported prices is disappearing, and retail is entering precisely when this support has vanished.
A 40-year trend has reversed
A second analyst suggests looking at the issue more broadly. While everyone is discussing AI and cryptocurrencies, the main event is unfolding in the bond market, which underpins nearly every "safe" portfolio. In 1981, bond yields reached 14%, and by 2020 they had fallen to nearly zero. That was 39 years of declining rates, ending amid the panic of COVID-19. At that time, the system flooded itself with liquidity, and the 40-year bull market in bonds quietly ended just when everyone felt rescued.
This reversal is not the end of the game, but the beginning of a much more interesting era. Forty years of falling rates lifted all assets together, and passive ownership of "the entire market" outperformed the ability to pick winners. Now that the trend has reversed, valuation, balance sheet quality, and real cash flow are once again taking center stage. According to JPMorgan, at current valuations, the annual return of the S&P 500 index could be near zero over a ten-year horizon.
My expert opinion: For Bitcoin, both signals primarily carry short-term risk. As a liquidity-sensitive risk asset, BTC risks coming under pressure alongside overvalued stocks. However, within the logic of the second analyst, there is also a flip side: if the old model of "buy the index and hold" stops working, and traditionally safe bonds lose their status as a safe haven, some capital may eventually seek alternatives outside traditional markets. In such a scenario, Bitcoin could contend for a role as one of the assets of a new era, though this will not happen immediately and is far from guaranteed.