Monetary liquidity is drying up: why the collapse of the 40-year bond bull market threatens Bitcoin
The U.S. financial system is sending alarming signals that directly impact the prospects of Bitcoin (BTC). Two independent analysts, whose opinions I trust, point to a fundamental shift: excess liquidity in the markets has turned negative for the first time since 2021, and the 40-year bull cycle in the bond market has come to an end. This changes the rules of the game for all risk assets, including the leading cryptocurrency.
Excess Liquidity: The Money Has Run Out
The excess liquidity indicator, calculated as the difference between the growth rate of the money supply, inflation, and economic growth, has turned negative for the first time since 2021. This "residual" has traditionally fueled the stock market and risky assets. Now it is gone.
When this indicator goes negative, capital typically flows from stocks into long-term bonds, and the yield curve flattens. Historically, this has foreshadowed a weakening of stock returns over the next 3–6 months. Notably, in my observation, the market has been pricing in tightening all year, and the Fed is merely catching up to these expectations. The new head of the regulator, Kevin Warsh, is not the root cause here, but rather a conduit for an already established trend.
The End of the Bond Era: 40 Years of Growth Behind Us
A second analyst, Thierry Borge, offers a broader perspective. While the crowd debates AI and cryptocurrency, the main event is unfolding in the bond market, which underpins nearly every "safe" portfolio. Bond yields fell from 14% in 1981 to 0% in 2020—39 years of declining rates that ended during the pandemic panic. At that time, the system flooded itself with liquidity, and the 40-year bull market in bonds quietly concluded just when everyone felt rescued.
This reversal is not the end of the game, but the beginning of a new, far more interesting era. Passive ownership of "the entire market" will no longer be a winning strategy. Now, valuation, balance sheet quality, and real cash flow come to the forefront. According to JPMorgan, at current valuations, the S&P 500's return over a ten-year horizon could be near zero, making the market a rich field for the active investor.
What Does This Mean for Bitcoin?
For Bitcoin, both signals carry short-term risk. If liquidity dries up and conditions tighten, BTC, as a liquidity-sensitive risk asset, risks coming under pressure alongside overvalued stocks. In the coming weeks, we may see a correction.
However, there is a flip side to Borge's logic. 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 the new era. But this will not happen immediately and is far from guaranteed.
My analysis: The market is currently in a transition phase. Short-term risks for BTC are high, but the long-term structural shift toward active management and the search for new "safe havens" could become a catalyst for the next bull cycle. Investors should prepare for volatility but not lose sight of fundamental changes.