Monetary liquidity is drying up: what lies behind the reversal of the 40-year bond trend and what it means for bitcoin
The financial system is undergoing a tectonic shift. Two independent analysts, whose work I have carefully studied, point to fundamental changes that could rewrite the rules of the game for all asset classes, including Bitcoin (BTC). This is not about a temporary correction, but a structural reversal.
Liquidity Running Out: A Warning from Bull Theory
The first signal comes from the analytical platform Bull Theory. Its indicator of excess liquidity in the financial system has turned negative for the first time since 2021. The methodology is simple: inflation and economic growth are subtracted from the growth rate of the money supply. This "residual" has traditionally fueled stock markets. Now, it is simply absent.
When the indicator turns negative, capital typically flows from stocks into long-term bonds. The yield curve flattens, and historically, this has foreshadowed a weakening of stock returns over the next 3–6 months. Notably, in my opinion, the new Fed Chair Kevin Warsh is not the root cause of this shift — the market itself has been pricing in tightening all year, and the regulator is merely "catching up."
The alarm is amplified by extreme overvaluation. Stocks are currently expensive relative to bonds in a way that has only occurred in the rarest moments over the past half-century — the current level has been surpassed in only 5% of cases. Against this backdrop, retail investors continue to actively buy stocks, recording the second-largest weekly inflow into ETFs in history. A paradoxical situation is emerging: the market's foundation is disappearing, yet retail is entering precisely when it has vanished.
The End of the 40-Year Bond Bull Market: Thierry Borger's View
A different, but equally important perspective is offered by Thierry Borger. He argues that the main event is not happening with AI or cryptocurrencies, but with bonds, which underpin nearly every "safe" portfolio.
Let me recall the timeline: in 1981, bond yields reached 14%, and by 2020, they had fallen to 0%. This was 39 years of declining rates, which ended at the moment of panic due to the COVID-19 pandemic. The system then "flooded" itself with liquidity, and the 40-year bond bull market quietly concluded precisely when everyone felt rescued.
According to Borger, 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" outperformed the skill of selection. Now that the trend has reversed, valuation, balance sheet quality, and real cash flow are once again coming to the forefront. He cites JPMorgan data: at current valuations, the annualized return of the S&P 500 index could be near zero over a ten-year horizon. This, in my view, 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, BTC, as a liquidity-sensitive risk asset, risks coming under pressure alongside overvalued stocks.
However, there is a flip side to Borger'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.
Expert Opinion: The market is entering a phase where passive strategies may deliver their worst historical returns. For Bitcoin, this means increased volatility and the need to prove its value as a safe-haven asset in conditions of liquidity scarcity. I expect that in the coming months, BTC will trade in a wide range, reacting to every macroeconomic signal, and only a structural outflow of capital from bonds could become its long-term catalyst.