Liquidity is drying up, the era of bonds has come to an end: what awaits Bitcoin?
The financial system is undergoing a fundamental shift that could radically change the rules of the game for all investors, including Bitcoin holders. Two independent analytical signals indicate that the familiar era of cheap money and rising bonds has ended, with a threat looming on the horizon for risky assets.
The first signal is a sharp change in the indicator of excess liquidity in the financial system. For the first time since 2021, this metric has moved into negative territory. It is calculated simply: inflation and economic growth are subtracted from the growth rate of the money supply. This "residual" has traditionally fueled stock markets, but it has now disappeared. When liquidity turns negative, capital typically flows from stocks into long-term bonds, which historically has preceded a weakening of stock returns over the next 3–6 months. Notably, the market has been pricing in this tightening all year, with the Fed merely "catching up" to it.
The situation is exacerbated by the extreme overvaluation of stocks relative to bonds. The current yield spread is at levels seen in only 5% of cases over the past half-century. Ironically, retail investors, ignoring these signals, continue to buy stocks at record rates, entering the market precisely when its fundamental support—excess liquidity—is disappearing.
The 40-year bond bull market is over
The second, even deeper shift concerns the bond market, which underpins virtually every "conservative" portfolio. The yield on 10-year Treasuries, peaking at 14% in 1981, steadily declined to zero by 2020. This 39-year downtrend ended during the pandemic panic when the system "flooded" itself with liquidity. Now that the trend has reversed, fundamental factors come to the forefront: company valuations, balance sheet quality, and real cash flow. According to JPMorgan estimates, at current prices, the return on the S&P 500 index over a ten-year horizon could be close to zero.
My analysis shows that for Bitcoin, these signals carry a dual but primarily short-term risk. As a risky asset highly sensitive to liquidity, BTC risks coming under pressure alongside overvalued stocks in the event of further monetary contraction. However, in the long term, if the old "buy and hold" model stops working and safe-haven bonds lose their status as a "quiet harbor," some capital will inevitably begin seeking alternatives outside traditional markets. In this 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. Investors should prepare for a period of heightened volatility and a reassessment of traditional strategies.