Crypto news

The financial system is undergoing a fundamental shift that could dramatically change the rules of the game for all risky assets, including Bitcoin. Two independent analysts — Bull Theory and Thierry Borget — point to the same alarming symptom: the era of cheap money and falling interest rates is over, and the market is now entering a new, much more complex phase.

Bull Theory identifies a critical moment: the excess liquidity indicator in the 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, the level of inflation, and economic growth. In other words, the "surplus" that traditionally fueled the rise of stocks and cryptocurrencies is no longer there. When this indicator falls below zero, capital typically flows from risky assets into long-term bonds, which historically preceded a weakening of the stock market over the next 3–6 months. Notably, according to the analyst, the new Fed Chairman Kevin Warsh is not the root cause of this shift — the market itself has been pricing in tighter conditions throughout the year, and the regulator is merely "catching up" with reality.

The situation is exacerbated by extreme overvaluation of stocks. Relative to bonds, they are currently at levels seen only 5% of the time over the past half-century. Meanwhile, retail investors, seemingly ignoring the signals, continue to actively buy stocks: exchange-traded funds focused on U.S. equities recorded the second-largest weekly inflow in history. This creates a paradoxical picture: the foundation that supported valuations is disappearing, yet retail is entering precisely at the moment when this support has vanished.

The 40-year bond cycle has come to an end

Thierry Borget offers a different, longer-term perspective on the situation. In his view, the main event is not happening in the stock or cryptocurrency markets, but in the bond segment, which is considered a "safe haven" and forms the basis of nearly every conservative portfolio. He reminds us that in 1981, bond yields reached 14%, and by 2020 they had fallen to nearly zero. This 39-year downward trend ended during the COVID-19 pandemic, when the system flooded itself with liquidity, and the 40-year bull market in bonds quietly concluded just when everyone felt saved.

Now that the trend has reversed, fundamental factors come to the forefront: valuation, balance sheet quality, and real cash flow. Borget cites JPMorgan data, according to which, at current valuations, the S&P 500 index's return over a ten-year horizon could be close to zero. In his view, this turns the market into a "rich field for the active investor," where the passive "buy and hold" strategy no longer works.

Direct risks and hidden opportunities for Bitcoin

For Bitcoin, both signals primarily carry short-term risk. As a risky asset highly sensitive to liquidity, BTC risks coming under pressure alongside overvalued stocks. The drying up of liquidity and tightening conditions pose a direct challenge to its current price.

However, within Borget's logic, there is also a flip side. If the familiar "buy the index and forget it" model stops working, and bonds lose their status as a safe haven, some capital may eventually begin to seek alternatives outside traditional markets. In such a scenario, Bitcoin could compete for a role as one of the assets of a new era. But this will not happen immediately and is far from guaranteed.

My professional conclusion: We are witnessing not just a correction, but a shift in the macroeconomic paradigm. For Bitcoin, this means the era of "easy money," which largely fueled its growth, has come to an end. In the coming months, we face a test of strength: can the digital asset prove its value as a store of value amid liquidity contraction, or will it remain a hostage to traditional risk appetites? We will find out the answer in the coming quarters.