The end of the bond era and the drying up of liquidity: what this means for Bitcoin
The financial system is entering a phase of tectonic shifts. Two independent analysts simultaneously point to a deep-seated shift that could reshape the rules of the game for all asset classes, including cryptocurrencies. This is not about a short-term correction, but a structural reversal that challenges established investment paradigms.
Liquidity Turns Negative
The first signal comes from an analysis by Bull Theory. Their calculations show that the excess liquidity indicator in the financial system has entered negative territory 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. This "residual" has traditionally fueled stock markets, but it has now disappeared.
When excess liquidity turns negative, capital typically flows from stocks into long-term bonds. The yield curve flattens, and historically this has foreshadowed a weakening of stock returns over the next 3–6 months. It's important to understand: this is not the result of actions by new Fed Chair Kevin Warsh. The market itself has been pricing in tighter conditions throughout the year, and the Fed is merely "catching up."
The situation is exacerbated by overheated valuations. Stocks are currently expensive relative to bonds in a way seen only in 5% of cases over the past half-century. Nevertheless, retail investors continue to actively buy stocks: US equity ETFs saw the second-largest weekly inflow in history. This creates a paradox: the foundation supporting stock prices is disappearing, yet retail investors are entering precisely at this moment.
The 40-Year Bond Bull Market Is Over
Thierry Borget offers a different perspective on the issue. While the crowd debates AI and cryptocurrencies, the main event is unfolding in the bond market, which underpins nearly every "safe" portfolio.
Borget reminds us: in 1981, bond yields reached 14%, and by 2020 they had fallen to 0%. This was 39 years of declining rates, which ended 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 concluded precisely when everyone felt saved.
Now the trend has reversed. Valuation, balance sheet quality, and real cash flow are once again taking center stage. Borget cites JPMorgan data: at current valuations, the annualized return of the S&P 500 index could be near zero over a ten-year horizon. This makes the market a rich field for active investors but deadly for a passive "buy and hold" strategy.
What This Means for Bitcoin
For Bitcoin (BTC), 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 Borget's 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 vie for a role as one of the assets of a new era. But this will not happen immediately and is far from guaranteed.
Expert Opinion: We are witnessing a classic transition from the era of "free money" to the era of active management. For Bitcoin, this is a dual challenge: in the short term, pressure from liquidity outflows; in the long term, potential demand as an alternative asset. Investors should prepare for heightened volatility and reconsider their risk management strategies.