The bond market has collapsed, liquidity has dried up: what this means for Bitcoin
The financial system is entering a new phase, and in my assessment, this carries serious risks for all risk assets, including Bitcoin. Two independent analytical signals point to a fundamental shift: the excess liquidity that has fueled markets for years is disappearing, and the 40-year bull market in bonds has come to an end.
Analyst Bull Theory notes 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. It is typically this surplus that flows into stocks, supporting their prices. Currently, it simply does not exist.
When this indicator enters negative territory, money generally flows from stocks into long-term bonds. The yield curve flattens, and historically, this foreshadows a weakening of stock returns over the next 3–6 months. It is important to understand: new Fed Chair Kevin Warsh is not creating this shift—the market has been pricing in tightening all year, and the Fed is merely "catching up."
Concerns are amplified by overheated valuations. Stocks are currently expensive relative to bonds in a way that has only occurred in the rarest moments over the past half-century—the indicator has been above current levels in only 5% of cases. Against this backdrop, retail investors continue to actively buy stocks: U.S. equity ETFs saw the second-largest weekly inflow in history. This means that the money that typically supported prices is disappearing, and retail is entering exactly when that support has vanished.
The 40-Year Bull Market in Bonds Is Over
Another perspective is offered by analyst Thierry Borje. While the crowd debates AI and cryptocurrency, the main event is happening with bonds, which lie in almost every "safe" portfolio. Borje 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 forty-year bull market in bonds quietly ended just when everyone felt saved.
According to him, this reversal is not the end of the game, but the beginning of a much more interesting one. For forty years, falling rates lifted all assets together, and passive ownership of "the whole market" beat the skill of selection. Now that the trend has reversed, valuation, balance sheet quality, and real cash flow are once again coming to the forefront. Borje cites JPMorgan data: at current valuations, the annual return of the S&P 500 index could be around zero over a ten-year horizon, which, in his opinion, makes the market a rich 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.
My analysis: In Borje'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. But in the short term—get ready for volatility.