Monetary liquidity is drying up, the 40-year era of bonds is behind us — what does this mean for Bitcoin
The financial world is undergoing a tectonic shift. Two independent analysts, whose conclusions I have carefully studied, point to a fundamental change in market structure that directly threatens traditional assets and, consequently, bitcoin.
Liquidity Turns Negative
The most alarming signal is the indicator of excess liquidity in the global financial system. For the first time since 2021, it has entered negative territory. This indicator 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 simply disappeared.
When this indicator falls below zero, capital typically flows from stocks into long-term bonds. Historically, such a development has foreshadowed a weakening of stock returns over the next 3–6 months. The irony of the situation is that, according to analysts, the new Fed chair is not the initiator of this shift — the market itself had been pricing in tighter conditions all last year, and the regulator is merely "catching up."
Against this backdrop, the overheating of valuations is particularly concerning. Stocks are currently expensive relative to bonds in a way that has only occurred in 5% of cases over the past half-century. Retail investors, ignoring the signals, continue to buy stocks: inflows into US stock exchange-traded funds were the second largest in history. This creates a paradoxical picture: the foundation that supported stock prices is disappearing, yet retail is entering the market precisely at the moment when this support has vanished.
The End of the 40-Year Bond Bull Market
The second analyst suggests looking at the problem from a broader perspective. While everyone is discussing AI and cryptocurrencies, the main event is unfolding in the bond market, which underpins almost every "conservative" portfolio.
Bond yields peaked at 14% in 1981 and steadily declined to 0% by 2020. This 39-year cycle of falling rates ended during the COVID-19 panic, when the system flooded itself with liquidity. Now that the trend has reversed, valuation, balance sheet quality, and real cash flow come to the forefront. According to JPMorgan, at current valuations, the S&P 500 index's return over a ten-year horizon could be near zero. This makes the market a "rich field" for the active investor, but a death sentence for the passive "buy and hold" strategy.
Double Risk for Bitcoin
For bitcoin, both signals primarily carry short-term risk. If liquidity dries up and conditions tighten, BTC, as a liquidity-sensitive risky asset, risks coming under pressure alongside overvalued stocks. In the short term, this is a direct "bearish" factor.
However, within the logic of the second analyst, there is also a flip side. If the old model of "buy the index and hold" stops working, and bonds lose their safe-haven status, 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 a new era, although this will not happen immediately and is far from guaranteed.
Expert opinion: I lean towards the view that in the coming quarters, we will see increased volatility and a correction in risky assets. Bitcoin is no exception. However, it is precisely during such periods of capital redistribution that new opportunities are born. Investors should be prepared for both scenarios: short-term pain and a long-term reassessment of BTC's role in the global portfolio.