The end of the bond era and the disappearance of liquidity: what awaits Bitcoin
The financial system is entering a new phase, and alarm signals for investors are growing louder. Two independent analytical perspectives point to fundamental changes: excess liquidity in the markets has turned negative for the first time since 2021, and the 40-year bond bull market appears to be over. For Bitcoin, as for other risk assets, this creates a unique combination of short-term threats and long-term opportunities.
Analysts at Bull Theory are noting a critical shift: the excess cash indicator in the financial system has turned negative. This indicator is calculated as the difference between the growth rate of the money supply, inflation, and economic growth. This "surplus" has traditionally fueled the stock market, but it has now disappeared. When the indicator goes negative, capital begins to flow from stocks into long-term bonds, which historically preceded a weakening of stock returns over a 3-6 month horizon.
Is the stock market bubble bursting?
The current situation is exacerbated by overheated valuations. Stocks are now expensive relative to bonds in a way that has only occurred in the rarest moments over the past half-century—the indicator exceeds the current level in only 5% of cases. However, retail investors, seemingly oblivious to this, continue to actively buy stocks: US stock ETFs saw the second-largest weekly inflow in history. This creates a paradox: the money that typically supported prices is disappearing, while retail investors are entering exactly when that support has vanished.
The 40-year bond cycle is over
Thierry Borges offers a different perspective on the situation. While the crowd debates AI and cryptocurrency, the main event is unfolding in the bond market. In 1981, bond yields reached 14%, and by 2020 they had fallen to 0%. This was 39 years of declining rates, ending during the panic of the COVID-19 pandemic. At that time, the system flooded itself with liquidity, and the 40-year bond bull market quietly ended just when everyone felt saved.
According to Borges, this reversal is not the end of the game but the beginning of a much more interesting phase. For forty years, falling rates lifted all assets together, and passive ownership of "the entire market" beat the skill of selection. Now that the trend has reversed, valuation, balance sheet quality, and real cash flow are once again taking center stage. Borges cites JPMorgan data: at current valuations, the annual return of the S&P 500 index could be near zero over a ten-year horizon, which, in his view, makes the market a rich field for active investors.
Bitcoin between a rock and a hard place
For Bitcoin, both signals primarily carry short-term risk. If liquidity dries up and conditions tighten, Bitcoin, as a liquidity-sensitive risk asset, risks coming under pressure alongside overvalued stocks. However, in Borges' logic, 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 compete for a role as one of the assets of a new era, though this will not happen immediately and is far from guaranteed.
My professional view: We are witnessing a rare moment of macroeconomic paradigm shift. For Bitcoin, this means that short-term corrections could be deep, but it is precisely during such periods that the foundation for future rallies is laid. Investors should be prepared for volatility and reconsider their risk management strategies.