The financial foundation is cracking at the seams: why bitcoin could be the next victim
We are witnessing a rare convergence of signals from two independent analysts, pointing to a fundamental shift in the global financial system. This is not just about a correction, but the end of an entire era that has defined the rules of the game for investors for decades. If their forecasts are correct, not only traditional markets but also cryptocurrencies, including bitcoin, could be at risk.
Vanishing Liquidity: The Main Enemy of Risk Assets
The first warning signal came from the analytical platform Bull Theory. Their key indicator — the measure of excess liquidity 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 has traditionally fueled stock market growth. Now it has disappeared.
When liquidity turns negative, money begins to flow from stocks into long-term bonds. The yield curve flattens, which historically has foreshadowed a weakening of stock returns over the next 3-6 months. Notably, according to analysts, the new Fed Chairman Kevin Warsh is not the root cause of this shift — the market has been pricing in tightening all year, and the regulator is merely "catching up."
The situation is exacerbated by overheated valuations. Stocks are currently expensive relative to bonds as rarely seen in the last half-century — the current level is surpassed in only 5% of historical cases. Against this backdrop, retail investors continue to actively buy stocks, setting record inflows into exchange-traded funds. This creates a paradoxical picture: the foundation that supported prices is disappearing, yet retail is entering precisely at the moment this foundation has vanished.
The End of the 40-Year Bond Bull Market
Another perspective is offered by analyst Thierry Borger. He argues that everyone is looking at the wrong bubble. While the crowd debates AI and cryptocurrencies, the main event is happening with bonds — an asset that lies at the core of almost every "safe" portfolio.
Borger reminds us of history: in 1981, bond yields reached 14%, and by 2020, they had fallen to 0%. These were 39 years of falling rates, which ended during the panic caused by the COVID-19 pandemic. It was precisely then, when everyone felt saved thanks to the injected liquidity, that the 40-year bond bull market quietly concluded.
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 whole market" beat the skill of selection. Now that the trend has reversed, valuation, balance sheet quality, and real cash flow are coming to the forefront again. Borger cites JPMorgan data: 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 the active investor.
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 risk asset, risks coming under pressure alongside overvalued stocks. In the coming months, we may see a correction.
However, in Borger'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 compete for a role as one of the assets of the new era, although this will not happen immediately and is far from guaranteed.
Expert opinion: We are currently in a transitional phase where old growth drivers are disappearing, and new ones have yet to form. Bitcoin, as one of the most volatile and liquidity-sensitive assets, could become either the main victim of this transition or one of its main beneficiaries. The key factor is whether it can prove its worth as "digital gold" in conditions of liquidity scarcity, or whether it will remain merely a high-risk speculative instrument following stock market sentiment.