Dwindling liquidity and the end of the bond era: 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 market model, based on cheap money and perpetual bond growth, is coming to an end.
The first signal comes from an analysis of excess liquidity. This indicator, calculated as the difference between the growth rate of the money supply, inflation, and economic growth, has turned negative for the first time since 2021. This "surplus" has traditionally fueled the stock market and risk assets. Now it has disappeared. When liquidity turns negative, capital begins to flow from stocks into long-term bonds, which historically foreshadows a weakening of stock returns over the next 3–6 months. It is important to understand that the current situation is not the result of actions by the new Fed Chair Kevin Warsh, but rather the culmination of tightening that the market has been pricing in all of last year. The Fed is merely catching up to market consensus.
The 40-Year Bull Market in Bonds is Over
The second, even deeper signal concerns the debt market. The yield on long-term U.S. bonds peaked at 14% in 1981 and steadily declined to zero by 2020. This 39-year trend of falling rates created a unique era where passively owning "the entire market" generated profits. The COVID-19 pandemic was the final point: the system flooded itself with liquidity, and the bond bull market quietly ended just when everyone felt saved.
Now the trend has reversed. Fundamental factors are coming to the forefront: real asset valuation, balance sheet quality, and cash flows. According to JPMorgan estimates, at current multiples, the return of the S&P 500 index over a ten-year horizon could be near zero. This means the end of the "buy and hold" era and the return of an active management era, where the ability to select assets will be more important than simply owning the index.
Risk and Opportunity for Bitcoin
For Bitcoin, both signals primarily carry short-term risk. As a risk asset highly sensitive to liquidity, BTC could come under pressure alongside overvalued stocks. The disappearance of "easy money" is a direct negative factor for its price in the coming months.
However, in the long term, there is a flip side to this scenario. If the traditional "buy the index" model stops working and bonds lose their "safe haven" status, some capital will seek alternatives outside traditional markets. In this context, 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.
My comment: The market is entering a phase where previous strategies stop working. For Bitcoin, this means a dual threat: short-term pressure from the disappearance of liquidity and a long-term chance to become a haven for capital fleeing depreciating bonds. The key question is whether BTC can maintain institutional trust during a period when "free money" has run out.