The financial system has exhausted itself: the end of the bond era and the threat to bitcoin
The market is experiencing a tectonic shift. Two independent analysts simultaneously point to the exhaustion of liquidity in the global financial system and the end of a 40-year bull cycle in the bond market. This creates a unique risk for Bitcoin and all risk assets.
Data from Bull Theory shows that the excess liquidity indicator 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. This surplus has traditionally fueled the stock market, but it has now disappeared.
When excess liquidity becomes negative, capital flows from stocks into long-term bonds, which historically preceded a weakening of stock returns over the next 3–6 months. Notably, the new Fed Chair Kevin Warsh is not the initiator of this shift—the market itself has been pricing in tightening all year, and the Fed is merely "catching up."
Concern is amplified by the overheated valuation of stocks relative to bonds. Stocks are currently as expensive as they have been in the last half-century—only 5% of the time has the indicator been higher than the current level. Retail investors, ignoring the signals, continue to actively buy stocks: US stock ETFs saw the second-largest weekly inflow in history. The capital that previously supported the market is disappearing, and retail is entering precisely when this support has vanished.
Thierry Borger: The 40-Year Bond Bull Market Has Ended
Thierry Borger offers a different perspective on the situation. While the crowd debates AI and cryptocurrencies, the main event is happening in the bond market, which lies at the core of nearly every "safe" portfolio.
Borger reminds us: in 1981, bond yields reached 14%, and by 2020 they had fallen to 0%. This was 39 years of declining rates, ending at the moment of panic due to the COVID-19 pandemic. At that time, the system "flooded" itself with liquidity, and the 40-year bond bull market quietly ended precisely when everyone felt rescued.
According to him, this reversal is not the end of the game, but the beginning of a much more interesting era. Forty years of falling rates lifted all assets together, and passive ownership of the "entire market" beat the ability to select. Now that the trend has reversed, valuation, balance sheet quality, and real cash flow are once again coming to the forefront.
Borger cites JPMorgan data: at current valuations, the S&P 500 index could yield approximately zero annually over a ten-year horizon. This makes the market a fertile field for the active investor.
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.
In Borger'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 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 conclusion: the current situation is a classic "moment of truth" for the crypto market. Short-term pressure on Bitcoin is inevitable, but it is precisely in such periods that the foundations for new growth are laid. Investors should prepare for increased volatility and reconsider their risk management strategies.