The financial system has exhausted liquidity: Bitcoin at the crossroads of a new era
Two independent signals simultaneously point to a tectonic shift in the global financial architecture. Analysts from Bull Theory and Thierry Borgès agree on one thing: the old paradigm, based on an endless influx of liquidity and rising bonds, has come to an end. This creates a unique but dangerous backdrop for Bitcoin and the entire risk asset market.
The excess liquidity indicator in the financial system, according to Bull Theory, 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. It is this "residual" that traditionally fueled stock markets, but now it has disappeared. When the indicator turns negative, money begins to flow from stocks into long-term bonds, flattening the yield curve. Historically, this has foreshadowed a weakening of the stock market over the following 3-6 months.
Notably, according to Bull Theory, Fed Governor 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" to reality. Against this backdrop, overheated stock valuations relative to bonds are at extreme levels—the indicator has been above its current value only 5% of the time over the past half-century. Retail investors, however, continue to actively buy stocks, recording the second-largest weekly inflow into US stock ETFs in history. They are entering the market precisely when its fundamental support—excess liquidity—is disappearing.
The 40-year bond bull market is over
Thierry Borgès offers a different perspective on the issue. While all attention is focused on AI and cryptocurrencies, the main event is unfolding in the bond market, which underpins nearly every "conservative" portfolio. Borgès reminds us: in 1981, bond yields reached 14%, and by 2020 they had fallen to 0%. This was 39 years of continuous rate declines, ending with a panicked "flood" of liquidity during the COVID-19 pandemic.
According to him, this reversal is not the end of the game, but the beginning of a much more complex one. Forty years of falling rates lifted all assets together, making passive ownership of "the entire market" a winning strategy. Now that the trend has reversed, valuation, balance sheet quality, and real cash flow come to the forefront. Borgès cites JPMorgan data: at current valuations, the annual return of the S&P 500 index could be near zero over a ten-year horizon. This makes the market a rich field for active investors but kills the "buy and hold" strategy.
Cryptalist Analysis: For Bitcoin, both signals primarily carry short-term risk. As a highly liquidity-sensitive asset, BTC may come under pressure alongside overvalued stocks in the coming months. However, in the long term, Borgès' logic opens up a different scenario: if traditional "safe havens" like bonds lose their appeal and passive investing stops working, some capital will inevitably begin seeking alternatives outside traditional markets. Bitcoin, with its limited supply and decentralized nature, has every chance of becoming a key asset in this new era, but the path to that will be thorny and full of volatility.