The financial system is drying up: the end of the 40-year bond bull market and the threat to Bitcoin
The market is experiencing a tectonic shift. Two independent analysts, whose conclusions I find extremely compelling, point to fundamental changes in the global financial system. This is not about a temporary correction, but a change in the very paradigm of investing, which could have a direct and potentially painful impact on bitcoin.
The Disappearance of Liquidity: The First Warning Sign
Analyst Bull Theory presented a concerning chart: the indicator of excess liquidity in the U.S. financial system has turned negative for the first time since 2021. This indicator is calculated as the difference between the growth rate of the money supply and the sum of inflation and economic growth. It is this "residual" that has traditionally fueled stock markets. It is now simply absent.
When liquidity dries up, capital typically flows from stocks into long-term bonds. The yield curve flattens, and historically this has foreshadowed a weakening of stock returns over a 3-6 month horizon. Notably, according to the expert, the Fed is merely catching up to the market here — the market itself has been pricing in tightening all year, and Fed Governor Kevin Warsh is not creating this shift, but merely acknowledging it.
Of particular concern is the overheating of valuations. Stocks are currently more expensive relative to bonds than at any point in the last half-century — only in 5% of historical cases has the indicator been higher. The irony is that retail investors, seemingly oblivious to this, continue to buy stocks, recording the second-largest weekly inflow into U.S. equity ETFs. The money that typically supported the market is disappearing, and retail is entering precisely when that support is vanishing.
The End of the 40-Year Bond Cycle
Thierry Borje looks at the problem from a different, but equally significant, angle. In his view, the main event is unfolding not with AI or cryptocurrencies, but with bonds, which form the foundation of virtually every "safe" portfolio.
He reminds us: in 1981, bond yields reached 14%, and by 2020 they had fallen to 0%. This was 39 years of continuous rate declines, which ended at the time of the COVID-19 pandemic. The system then "flooded" itself with liquidity, and the 40-year bull market in bonds quietly concluded precisely when everyone felt saved.
According to him, 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" defeated the skill of selection. Now that the trend has reversed, valuation, balance sheet quality, and real cash flow are once again taking center stage.
What Does This Mean for Bitcoin?
For bitcoin, both signals primarily carry short-term risk. If liquidity dries up and conditions tighten, bitcoin, as a liquidity-sensitive risk asset, risks coming under pressure alongside overvalued stocks. We could see a correction.
However, within Borje's logic, there is also a flip side. 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 contend for a role as one of the assets of the new era.
My view: Right now, we are witnessing a classic conflict between structure and momentum. Structure signals a regime change and increased risks for all risk assets, including BTC. But momentum and retail interest remain strong. The key question is whether bitcoin can hold above critical support levels if liquidity continues to contract. If it can, the medium-term scenario of capital flowing from bonds could become a powerful driver for it. If not, a deep correction awaits us.