The disappearance of 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 asset classes, including Bitcoin. Two independent analytical observations point to a synchronous deterioration in key macroeconomic indicators, creating a unique set of risks and opportunities for the cryptocurrency market.
Liquidity Turns Negative: First Signal Since 2021
The excess liquidity indicator in the financial system has turned negative for the first time since 2021. This metric is calculated as the difference between the growth rate of the money supply, inflation, and economic growth. This "residual" has traditionally fueled rallies in stock markets, but it has now disappeared. When liquidity becomes negative, capital typically flows from stocks into long-term bonds, which historically has led to a weakening of stock returns over the following 3–6 months. It is important to understand: this is not the result of actions by the new Fed chair, but rather a delayed market reaction to the tightening that was already priced in throughout the past year.
The 40-Year Bond Bull Market Has Ended
Alongside this, the 40-year cycle of declining bond yields has come to an end. Since 1981, when yields reached 14%, they steadily declined to zero in 2020, culminating in the pandemic-era liquidity injection. This trend, which made passive ownership of the "entire market" a winning strategy, has now reversed. Fundamental valuation, balance sheet quality, and real cash flow are now taking center stage. According to some estimates, at current multiples, the annual return of the S&P 500 index over a ten-year horizon could approach zero, creating a fertile ground for active management.
A Double Blow for Bitcoin
For Bitcoin, both of these signals primarily carry short-term risk. As a risk-on asset highly sensitive to liquidity, BTC risks coming under pressure alongside overvalued stocks amid a contraction in the money supply. However, in the logic of shifting eras, there is also a flip side: if the "buy and hold the index" model stops working and bonds lose their safe-haven status, some capital may eventually begin seeking alternatives outside traditional markets.
My view: In the short term, Bitcoin is vulnerable — the disappearance of "cheap money" deprives the market of its main growth driver. But it is precisely in such an environment that a reassessment of values occurs. Bitcoin may compete for the role of an asset of the new era, but this will not happen immediately and is far from guaranteed. Investors should prepare for a period of high volatility and a revision of familiar strategies.