Crypto news

The financial system is entering a new phase, and this directly concerns anyone holding risky assets, including Bitcoin. Two key signals point to a deep shift: 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 investors, this means the end of the old paradigm when money was cheap and passive asset ownership generated profits.

Analysts agree that we are witnessing not just a correction, but a fundamental reversal. One of them points to a critical indicator—the measure of excess cash in the financial system. It is calculated as the difference between the growth rate of the money supply, inflation, and economic growth. This "residual" has traditionally flowed into stocks, supporting their prices. Now, this indicator has turned negative, which happens extremely rarely.

When liquidity dries up, capital begins to flow 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. Notably, the current shift is not the result of actions by the new Fed leadership—the market has been pricing in tighter conditions throughout the year, and the regulator is merely "catching up."

The situation is exacerbated by overheated valuations. Stocks are now expensive relative to bonds in a way that has occurred only 5% of the time over the past half-century. The level of overvaluation is extreme. Meanwhile, retail investors continue to actively buy stocks: U.S. equity ETFs saw the second-largest weekly inflow in history. The paradox is that the money that typically supported the market is disappearing, and retail is entering precisely when this support has vanished.

40 Years of Falling Rates: The End of an Era

The second, equally important aspect concerns the bond market. While all attention is focused on stocks and cryptocurrencies, the main event is unfolding where the foundation of every "safe" portfolio lies. The historical dynamics of U.S. long-term bond yields are clear: a peak of 14% in 1981 and a decline to 0% by 2020. These 39 years of falling rates lifted all assets together, making passive ownership of "the entire market" a winning strategy.

However, this trend has reversed. The forty-year bond bull market ended quietly, at a time when everyone felt rescued after the pandemic shock. Now that the trend has changed, valuation, balance sheet quality, and real cash flow come to the forefront. At current valuations, the annual return of the S&P 500 index could be around zero over a ten-year horizon. This makes the market a rich field for active investors but extremely dangerous for passive ones.

For Bitcoin (BTC), both signals primarily carry short-term risk. As a liquidity-sensitive risky asset, it risks coming under pressure alongside overvalued stocks. However, in the logic of a long-term reversal, 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, though this will not happen immediately and is far from guaranteed.

My view: the current situation is a classic transition period when old growth drivers are drying up and new ones have yet to form. Bitcoin, as the most liquid and volatile asset, will find itself at the epicenter of turbulence. Investors should prepare for increased volatility and reconsider risk management strategies. The era of "easy money" is over, and now every asset must prove its value.