The financial system is running dry: why the end of the bond era threatens Bitcoin
We are witnessing a fundamental shift in the global financial architecture that could reshape the rules of the game for all risk assets, including Bitcoin. Two independent signals indicate that the familiar market model, based on abundant liquidity and years of falling rates, is coming to an end. This creates a unique set of risks and opportunities for the cryptocurrency sector.
Liquidity is leaving: the first warning since 2021
One of the key indicators — the measure of excess liquidity in the financial system — has turned negative for the first time since 2021. This indicator is calculated as the difference between the growth rate of the money supply, inflation, and economic growth. It is this "remainder" that has traditionally fueled the growth of stock markets. Now it is gone.
When excess liquidity disappears, capital begins to flow from stocks into long-term bonds. The yield curve flattens, which historically has foreshadowed a weakening of stock returns over the next 3–6 months. It is important to understand: the current Fed Chair Kevin Warsh is not creating this trend — the market itself has been pricing in tighter conditions throughout the year, and the regulator is merely catching up with reality. Against this backdrop, stocks look extremely expensive relative to bonds — the current level of overvaluation has been seen in only 5% of cases over the past half-century. Paradoxically, retail investors continue to actively buy stocks, recording the second-largest weekly inflow into US stock ETFs in history. They are entering just as the support of excess liquidity has already vanished.
The 40-year bond bull market is over
The second, deeper signal comes from the debt market. Bond yields peaked at 14% in 1981 and fell continuously to zero by 2020. This 39-year downtrend ended during the COVID-19 pandemic, when the system "flooded" itself with liquidity. Now that the trend has reversed, fundamental factors come to the forefront: valuation, balance sheet quality, and real cash flow. Passive ownership of "the entire market" no longer guarantees success.
According to JPMorgan estimates, at current valuations, the return of the S&P 500 index over a ten-year horizon could trend toward zero. This turns the market into a field for active investors, where the ability to select assets becomes critical.
What does this mean for Bitcoin?
For Bitcoin, both signals primarily carry short-term risk. As a risk asset highly sensitive to liquidity, BTC risks coming under pressure alongside overvalued stocks. However, in the long term, if the "buy and hold the index" model stops working and traditional bonds lose their "safe haven" status, some capital may begin to seek alternatives outside traditional markets.
My expert opinion: We are entering a phase where liquidity will no longer "lift all boats." Bitcoin, as an asset with a fixed supply and independent monetary policy, has a chance to become one of the beneficiaries of this structural shift, but this will not happen immediately and is far from guaranteed. In the coming months, volatility and correction are a more likely scenario than immediate growth.