The financial system is running dry: why bitcoin is on the verge of a new era
The market is undergoing a fundamental shift that many investors are still underestimating. Two independent analysts — Bull Theory and Thierry Borget — point to the same alarming signal: the traditional financial system is losing liquidity, and the four-decade-long bond era is coming to an end. This poses a direct threat to Bitcoin and all risk assets.
Liquidity has turned negative
Bull Theory notes a critical moment: the indicator 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. This "residual" has traditionally fueled stock markets, but it has now disappeared.
When excess liquidity turns negative, capital begins to flow from stocks into long-term bonds. The yield curve flattens, and historically, this has foreshadowed a weakening of the stock market over the next 3–6 months. Notably, according to the analyst, the new Fed Chair Kevin Warsh is not creating this trend — the market itself 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 in a way that has only occurred in 5% of cases over the past half-century. Meanwhile, retail investors continue to actively buy stocks: the weekly inflow into US stock funds was the second largest in history. This means that market support is disappearing precisely at the moment when retail is entering with maximum optimism.
The 40-year bond bull market is over
Thierry Borget suggests looking at the problem more broadly. In his view, the main event is not happening with AI or cryptocurrencies, but with bonds, which form the foundation of almost every "safe" portfolio. In 1981, bond yields reached 14%, and by 2020 they had fallen to zero. This was 39 years of falling rates, ending in the panic caused by the COVID-19 pandemic. At that time, the system "flooded" itself with liquidity, and the 40-year bond bull market quietly ended just when everyone felt saved.
Borget emphasizes: 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 once again taking center stage. Citing JPMorgan data, the analyst notes that at current valuations, the annual return of the S&P 500 index could be around zero over a ten-year horizon.
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. However, in Borget'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.
My expert conclusion: Bitcoin is currently in a zone of turbulence. The short-term risk of a correction is high, but it is precisely such periods of structural shifts that often become entry points for those who see long-term value in decentralized assets. Watch liquidity — it is the main indicator for the coming weeks.