Liquidity is drying up, the era of bonds is over: what this means for Bitcoin
The financial system is undergoing a fundamental shift that could dramatically change the rules of the game for all risk assets, including Bitcoin. Two independent analytical signals indicate that the familiar era of cheap money and perpetual bond growth is coming to an end. This creates a unique set of risks and opportunities for the crypto market.
Vanishing Liquidity: A Signal from Bull Theory
The first warning sign is the indicator of excess liquidity in the financial system, which 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. Simply put, the very "surplus" that traditionally fueled the rise of stocks and risk assets has simply evaporated.
When this indicator turns negative, capital typically begins to flow from stocks into more defensive instruments, such as long-term bonds. The yield curve flattens, and historically, this has foreshadowed a weakening of the stock market over the next 3–6 months. It's important to understand that this is not the result of actions by the new Fed chair—the market itself has been pricing in tighter conditions all last year, and the regulator is merely "catching up."
Against this backdrop, the overheating of valuations looks particularly alarming. Stocks are currently expensive relative to bonds in a way that has only occurred in 5% of cases over the past half-century. The irony is that retail investors, seemingly oblivious to the disappearance of fuel, continue to actively buy stocks: inflows into US stock exchange-traded funds posted the second-largest weekly result in history. They are entering the market precisely when its fundamental support—excess liquidity—has already vanished.
The Forty-Year Bond Bull Market is Over: Thierry Borges' View
The second, even deeper signal concerns bonds. While all attention is focused on AI and cryptocurrencies, the major tectonic event is occurring in the market that underpins virtually every "conservative" portfolio.
Since 1981, bond yields have steadily fallen from 14% to nearly zero by 2020. This 39-year trend of declining rates ended during the pandemic panic, when the system "flooded" itself with liquidity. Now that the trend has reversed, fundamental factors are coming to the forefront again: valuation, balance sheet quality, and real cash flow. Passive ownership of "the entire market" will no longer yield easy wins—the era of "buy and hold" for indices is ending.
By some estimates, at current multiples, the yield of the S&P 500 index could trend toward zero over a ten-year horizon. This makes the market incredibly challenging, but simultaneously a rich field for the active investor.
What Does This Mean for Bitcoin?
For Bitcoin, both of these signals primarily carry short-term risk. As a risk asset highly sensitive to liquidity, BTC risks coming under pressure alongside overvalued stocks if the "dryness" in the system persists. In Borges' scenario, there is also a flip side: if traditional "safe havens"—bonds—lose their appeal, and passive strategies stop working, some capital may eventually begin to seek alternatives outside traditional markets.
My view: Bitcoin is in a unique position. In the short term, it is vulnerable due to its correlation with risk appetite. But if the new financial era truly requires active capital reallocation and the search for new "hard" assets, BTC could compete for a place in the new mainstream. However, this will not happen immediately and is far from guaranteed. Right now, the main risk is missing the moment when the market begins to price in this global shift.