The financial system is drying up: how the end of the bond era threatens bitcoin
We are observing a rare and, frankly, alarming signal for all global markets. Two independent analysts, whose opinions I deeply value, are simultaneously pointing to a fundamental shift in the financial system. We are talking about the disappearance of excess liquidity and the end of the 40-year bond bull market. This is not just a correction — it is a change of era that carries direct risks for bitcoin and the entire class of risky assets.
Liquidity has turned negative: what does this mean?
The indicator of excess liquidity in the financial system, calculated as the difference between money supply growth, inflation, and economic growth, has turned negative for the first time since 2021. Historically, it is this "remainder" that has fueled the growth of stocks and cryptocurrencies. Now, there is simply no money left to push markets higher. Moreover, when this indicator falls below zero, capital traditionally flows from stocks into long-term bonds in search of safety. The yield curve flattens, and as history shows, this foreshadows a weakening of the stock market over the next 3–6 months.
It is important to understand: this is not so much the result of the new Fed chair's actions as it is the inertia of the market itself. Throughout last year, the market was pricing in tightening, and the regulator is now merely "catching up." But for bitcoin, as the asset most sensitive to liquidity, this is a direct signal of short-term pressure. When "easy money" runs out, the most volatile instruments are the first to suffer.
The 40-year bond bull market is over
The second, no less important signal comes from the bond market. The yield on long-term U.S. government bonds, which fell from 14% in 1981 to nearly zero in 2020, has reversed. This 40-year trend, which lifted all assets indiscriminately, has ended. The era when passively owning "the entire market" guaranteed profits is a thing of the past.
Now that the trend has reversed, fundamental factors come to the forefront: real valuation, balance sheet quality, and cash flow. According to JPMorgan, at current valuations, the S&P 500 index's return over a ten-year horizon could be close to zero. This means the market is entering a phase where active management and the selection of individual assets will be crucial.
For bitcoin, this is a double blow. In the short term, it risks coming under pressure alongside overvalued stocks. However, in the long term, this opens a window of opportunity. If traditional "safe havens" like bonds lose their appeal, some capital may eventually begin to seek alternatives. Bitcoin, as a digital form of hedging, could compete for a place in the new financial architecture, but the path will be thorny and far from guaranteed.
My view: The market is entering a zone of high turbulence. Investors, especially in cryptocurrencies, should prepare for a period of increased volatility and reconsider their risk management strategies. The era of "buy and hold" for all assets indiscriminately is over — now only quality analysis and discipline will survive.