Liquidity is drying up, the era of "perpetual growth" for bonds is behind us: what this means for Bitcoin
The financial system is entering a phase of tectonic shifts, and this directly impacts the digital asset market. Two independent analytical signals point to a fundamental change: excess liquidity in markets has turned negative for the first time since 2021, and the 40-year bond bull market appears to have ended. For Bitcoin (BTC) and other risk assets, this means increased short-term pressure and a need to reassess strategies.
Liquidity Running Out
My analysis of the excess liquidity indicator, calculated as the difference between the growth rate of the money supply, inflation, and economic growth, reveals a concerning picture. This indicator, essentially the "fuel" for the stock market, has turned negative for the first time since 2021. When this metric goes negative, capital traditionally flows from stocks into long-term bonds, which historically precedes a weakening of risk asset performance over the next 3–6 months.
Notably, the market had priced in tightening long before the new Fed leadership took action. In my assessment, the regulator is merely catching up to market expectations, not creating this shift. Against this backdrop, retail investors continue to actively buy stocks—inflows into US equity ETFs recorded the second-largest weekly inflow in history. However, this dynamic looks like an attempt to jump on a departing train: the money that typically supported prices is disappearing, and retail is entering precisely when that support vanishes.
A 40-Year Trend Broken
Simultaneously, a change of era is underway in the bond market. In 1981, bond yields reached 14%, and by 2020 they had fallen to nearly zero. This 39-year downtrend ended during the pandemic panic, when the system flooded itself with liquidity. Now that the trend has reversed, fundamental factors come to the forefront: valuation, balance sheet quality, and real cash flow.
At current valuations, according to JPMorgan, the ten-year return of the S&P 500 index could be near zero. This makes the market a "rich hunting ground" for active investors but kills the "buy and hold" strategy.
What This Means for Bitcoin
For Bitcoin, both signals primarily carry short-term risk. As a liquidity-sensitive risk asset, BTC risks coming under pressure alongside overvalued stocks. However, there is a flip side: if traditional "safe havens" like bonds lose their appeal, some capital may eventually begin seeking alternatives outside traditional markets.
My conclusion: In the short term, we will likely see a correction in risk assets, including Bitcoin. However, it is precisely in such moments that new opportunities are formed. The era of passive ownership of "the entire market" is ending, giving way to a time of active selection. Bitcoin could become one of the beneficiaries of this new reality, but the path will be rocky and uncertain.