The financial system is drying up: the end of the 40-year bond bull market and the threat to Bitcoin
The market is undergoing a fundamental shift that many investors are still underestimating. Two independent analytical signals indicate that the previous model of global liquidity is breaking down, and with it, the era of passive growth is fading away. This creates direct risks for Bitcoin (BTC) as an asset highly sensitive to liquidity.
Liquidity Turns Negative: The Bull Theory Signal
The indicator of excess liquidity in the financial system has turned negative for the first time since 2021. This metric 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 the indicator goes negative, capital begins to flow from stocks into long-term bonds, and the yield curve flattens. Historically, this has 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 has been pricing in tighter conditions all year, and the regulator is merely "catching up." Against this backdrop, retail investors continue to actively buy stocks: US stock exchange-traded funds saw the second-largest weekly inflow in history. However, the money that typically supported prices is disappearing, and retail is entering precisely when this support has vanished.
Borgier: The 40-Year Bond Bull Market Is Over
Another perspective is offered by Thierry Borgier. He reminds us that 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 caused by the COVID-19 pandemic. At that time, the system "flooded" itself with liquidity, and the forty-year bond bull market quietly concluded just 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" outperformed 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. Borgier cites JPMorgan data: at current valuations, the annual return of the S&P 500 index could be near zero over a ten-year horizon, making the market a rich field for active investors.
What Does This Mean for Bitcoin?
For Bitcoin, both signals primarily carry short-term risk. If liquidity dries up and conditions tighten, Bitcoin, as a liquidity-sensitive risky asset, risks coming under pressure alongside overvalued stocks. However, in Borgier'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 the new era, though this will not happen immediately and is far from guaranteed.
Cryptalist's Opinion: The market is entering a phase where passive strategies no longer work, and liquidity becomes scarce. For Bitcoin, this means increased volatility and a potential correction in the coming months, but in the long term—a chance to strengthen its position as an alternative asset in a new financial paradigm.