Liquidity is drying up, the era of "buy and hold" bonds is over: what this means for Bitcoin
The financial system is entering a new phase, and signals from traditional markets are forcing even the most steadfast crypto investors to reconsider their strategies. Two independent macroeconomic analyses point to a fundamental shift that carries both short-term risks and long-term opportunities for Bitcoin (BTC).
The Indicator That Vanished: "Free Money" Turns Negative
One of the key indicators — excess liquidity in the financial system — has turned negative for the first time since 2021. This metric is calculated as the difference between money supply growth, inflation, and economic growth rates. This surplus has traditionally fueled stock markets, but it is now simply absent.
When this indicator turns negative, capital typically flows from stocks into long-term bonds. The yield curve flattens, which historically preceded a weakening of stock returns over the next 3–6 months. It is important to understand: the current tightening is not the result of actions by the new Fed chair, but a market process that has been building over the past year. The regulator is merely catching up with reality.
Against this backdrop, retail investors are displaying paradoxical behavior. They continue to actively buy stocks, setting records for ETF inflows. However, the foundation that supported prices — excess liquidity — is disappearing. This is a classic scenario where the crowd enters the market precisely when its fundamental support has evaporated.
The End of the 40-Year Bond Bull Market
A look at the long-term perspective offers an even deeper analysis. This is not about a temporary downturn, but the end of an entire era. Since 1981, bond yields have steadily fallen from 14% to nearly zero in 2020. This 39-year trend, which lifted all assets, ended during the pandemic panic when the system flooded itself with liquidity.
Now the trend has reversed. This means that passive market ownership ("buy the index and hold") will no longer guarantee success. Valuation, balance sheet quality, and real cash flow come to the forefront. According to data from a leading bank, at current valuations, the S&P 500 index's return could trend toward zero over a ten-year horizon, making the market a field for active, not passive, investors.
Bitcoin Between a Rock and a Hard Place
For Bitcoin, both of these signals primarily carry short-term risk. As a liquidity-sensitive risk asset, BTC could come under pressure alongside overvalued stocks. The depletion of liquidity is a direct factor that could trigger a correction.
However, within the logic of the end of the bond era, there is also a flip side. If traditional "safe havens" lose their reliability and passive investing stops working, some capital will eventually begin to seek alternatives outside traditional markets. In this 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.
Analyst's Comment: While the market is fixated on AI and memes, the real tectonic plate is shifting in the bond sector. Bitcoin, as the most liquid and volatile asset, could benefit from this in the long term, but in the coming quarters, we are likely in for a test of strength. Investors should be prepared for a period of high volatility and reassess their risks.