Liquidity is drying up, the era of "passive income" is collapsing: what does this mean for Bitcoin?
The financial world is undergoing a tectonic shift. Two independent analysts — Bull Theory and Thierry Borget — are pointing to fundamental changes that call into question conventional investment strategies. The first sounds the alarm over the disappearance of excess liquidity, while the second proclaims the end of the 40-year bond bull market. Both signals carry serious risks for Bitcoin and the entire risk asset market.
Analyst Bull Theory notes that the excess liquidity indicator in the U.S. 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 has vanished, and historically, this has foreshadowed a weakening of equity returns over the next 3–6 months. Notably, according to the analyst, the Fed, led by Kevin Warsh, is merely "catching up" to a market that has been independently pricing in tighter conditions throughout the year.
The situation is exacerbated by overheated valuations. Stocks are currently expensive relative to bonds in a way that has only occurred in the rarest moments over the past half-century — the current level has been seen in only 5% of cases. Retail investors, however, are showing record activity: inflows into U.S. equity exchange-traded funds posted the second-largest weekly figure in history. The paradox is clear: the money that typically supported prices is drying up, and retail is entering precisely when this support is disappearing.
The End of a 40-Year Cycle: What Thierry Borget Says
Thierry Borget offers a different perspective. While the crowd debates AI and cryptocurrencies, the main event is unfolding in the bond market. He reminds us that in 1981, long-term bond yields reached 14%, and by 2020, they had fallen to nearly zero. This 39-year trend of declining rates ended during the pandemic panic, when the system was flooded with liquidity. In his view, this was not the end of the game, but the beginning of a much more interesting phase.
Now that the trend has reversed, valuation, balance sheet quality, and real cash flow come to the forefront. Borget cites JPMorgan data: at current valuations, the S&P 500's ten-year return could be near zero. This, in his opinion, makes the market a "rich field for the active investor" who knows how to select, rather than simply buying the entire market.
What This Means for Bitcoin
For Bitcoin, both signals primarily carry short-term risk. As a liquidity-sensitive risk asset, BTC could come under pressure alongside overvalued stocks. My analysis shows that in an environment of drying liquidity and tightening monetary conditions, Bitcoin may face a correction similar to what we have seen during previous liquidity squeezes.
However, there is a flip side to Borget's logic. If the old model of "buy the index and hold" stops working, and bonds lose their status as a "safe haven," some capital may eventually seek alternatives outside traditional markets. In such a scenario, Bitcoin could compete for a role as one of the assets of a new era, though this will not happen immediately and is far from guaranteed. The market is entering a phase where passive ownership of everything no longer yields results, and this could be both a challenge and an opportunity for digital assets.