No more money: liquidity is gone, the era of bonds is over — what this means for Bitcoin
The financial system is undergoing a tectonic shift. Two independent analysts are pointing almost simultaneously to the disappearance of a key growth driver — excess liquidity. Bull Theory notes that for the first time since 2021, the excess liquidity indicator in the system has turned negative. And Thierry Borger declares the end of the 40-year bond bull market. Both signals, in my view, point to a fundamental paradigm shift that will affect all risk assets, including Bitcoin.
Liquidity is drying up: what this means for markets
The excess liquidity indicator, calculated as the difference between the growth rate of the money supply, inflation, and economic growth, has turned negative for the first time in three years. Historically, it was this "residual" that fueled stock markets. Now it is gone. Bull Theory rightly notes that when the indicator goes negative, money begins to flow from stocks into long-term bonds. The yield curve flattens, and this typically foreshadows a weakening of stock returns over the next 3–6 months.
Notably, retail investors, seemingly oblivious to the trend shift, continue to actively buy stocks. US equity exchange-traded funds recorded the second-largest weekly inflow in history. However, if the support from excess liquidity has vanished, this inflow could prove to be a "trap" for late buyers.
The end of the 40-year bond bull market
Thierry Borger suggests looking at the situation more broadly. In his view, the main event is not about AI or cryptocurrencies, but about bonds — the asset that underpins nearly every "safe" portfolio. He reminds us that since 1981, bond yields fell from 14% to nearly 0% by 2020. This 39-year downward trend ended during the COVID-19 pandemic, when the system "flooded" itself with liquidity.
Now, according to Borger, the trend has reversed. This means that passively owning "the entire market" will no longer yield easy profits. Valuation, balance sheet quality, and real cash flow are once again coming to the forefront. He cites JPMorgan data, which suggests that at current valuations, the S&P 500 index's return over a ten-year horizon could trend toward zero. This certainly creates a rich field for active investors, but for passive strategies, it poses a serious challenge.
Risk for Bitcoin and the new reality
For Bitcoin, both signals primarily carry short-term risk. As a liquidity-sensitive risk asset, BTC risks coming under pressure alongside overvalued stocks. If excess liquidity dries up and conditions tighten, the correction could be deeper than most market participants expect.
However, there is another side to this. If the old "buy and hold" model stops working and traditional "safe havens" like bonds lose their status, some capital may eventually begin to seek alternatives outside traditional markets. In such a scenario, Bitcoin could compete for a role as one of the assets of a new era. But this will not happen immediately and is far from guaranteed.
Expert opinion: I believe we are entering a period where the correlation between traditional markets and cryptocurrencies may strengthen in the short term due to a general liquidity shortage. However, it is precisely in such moments that the foundations for the next major cycle are laid. Investors should prepare for increased volatility and reconsider their risk management strategies.