Crypto news

We are witnessing a rare and alarming phenomenon at the macroeconomic level: two independent analysts are simultaneously pointing to a fundamental shift in the global financial system. The essence of their conclusions boils down to one thing—the era of cheap money and falling bond yields, which lasted for four decades, has ended. This creates fundamentally new risks for all risky assets, including Bitcoin.

Excess Liquidity Turns Negative

The first signal comes from an analysis of a macroeconomic indicator that I track particularly closely: the excess liquidity measure 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 this residual that typically fuels stock market growth, flowing into equities and other risky assets. Now, this "fuel" is simply gone.

Historically, when this indicator turns negative, capital begins to flow from stocks into long-term bonds, leading to a flattening of the yield curve. Typically, this is followed by a weakening of equity returns over a 3–6 month horizon. It is important to understand: the current tightening of conditions is not an initiative of the new Fed chair. The market itself has been pricing in this tightening throughout the year, and the regulator is merely "catching up" to it.

The picture is further complicated by extreme overvaluation. Stocks are currently so expensive relative to bonds that such a level has only been observed in 5% of cases over the past half-century. Meanwhile, retail investors, seemingly oblivious to this, continue to actively buy stocks, setting records for inflows into exchange-traded funds. This creates a paradox: the foundation supporting stock prices is disappearing, yet retail investors are entering precisely at this moment.

The 40-Year Bond Bull Market Is Over

Looking at the situation from another angle confirms these concerns. This refers to the global reversal in the bond market, which most investors are currently ignoring, engrossed in discussions about AI and cryptocurrencies. Yet bonds are the foundation of almost every "safe" portfolio.

Let me remind you of the key milestones of this trend: in 1981, bond yields reached 14%, and by 2020, they had fallen to nearly zero. This was 39 years of continuous rate declines, which ended during the COVID-19 pandemic panic. It was precisely then, when everyone felt saved thanks to the injected liquidity, that the 40-year bond bull market quietly and imperceptibly came to an end.

This reversal is not the end of the game, but the beginning of a much more interesting phase. 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 come to the forefront. According to JPMorgan data, at current valuations, the return of the S&P 500 index over a ten-year horizon could trend toward zero. This turns the market into a rich field for the active investor.

Direct Risks and Opportunities for Bitcoin

For Bitcoin, both signals primarily carry short-term risk. As a liquidity-sensitive risky asset, it risks coming under pressure alongside overvalued stocks. If liquidity dries up and conditions tighten, Bitcoin could face a serious correction.

However, there is also a flip side to the logic of the end of the bond era. 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 begin to seek alternatives outside traditional markets. In such a scenario, Bitcoin could contend for a role as one of the assets of the new era. But this will not happen immediately and is far from guaranteed.

My conclusion: we are entering a period when passive investing ceases to be a surefire strategy. The market is changing the rules, and Bitcoin will have to prove its worth not as a speculative tool, but as an asset capable of surviving and growing in conditions of liquidity scarcity. The coming months could be a decisive test for the entire crypto industry.