Crypto news

Financial markets are undergoing a fundamental shift that could dramatically reshape the landscape for all asset classes, including cryptocurrencies. Two independent analytical signals indicate that the era of cheap money and falling interest rates has come to an end, creating new, non-trivial risks for Bitcoin.

Liquidity Turns Negative: A Signal from Bull Theory

The indicator of excess liquidity in the financial system, calculated as the difference between the growth rate of the money supply, inflation, and economic growth, has turned negative for the first time since 2021. This is a critical indicator. This "residual" liquidity has traditionally fueled the growth of risk assets, including stocks and cryptocurrencies. Now, this flow has dried up.

When the indicator goes negative, historically it heralds a capital shift from stocks into more defensive instruments, primarily long-term bonds. The yield curve flattens, and over the next 3–6 months, this typically leads to a weakening of the stock market. Analysts emphasize that the current tightening of conditions is not a consequence of actions by the new Fed Chair Kevin Warsh — the market itself has been pricing in this shift throughout the year, with the regulator merely "catching up."

Against this backdrop, the overheating of the stock market looks particularly alarming. The relative expensiveness of stocks compared to bonds is at extreme levels, seen in only 5% of cases over the past half-century. Retail investors, nevertheless, continue to actively buy stocks, recording record inflows into exchange-traded funds. This creates a paradoxical situation: the "fuel" for growth (liquidity) is disappearing, while retail demand peaks precisely at this moment.

Thierry Borje: The 40-Year Bond Cycle Is Complete

A second, more long-term perspective on the situation is offered by Thierry Borje. In his view, the main event is not happening in the stock or cryptocurrency markets, but in the bond market, which underpins nearly every "conservative" portfolio.

Borje reminds us that in 1981, long-term bond yields reached 14%, and by 2020 they had fallen to nearly zero. This was a 39-year downward trend that ended during the pandemic panic, when the system "flooded" itself with liquidity. Now, this trend has reversed. According to him, this is not the end of the game, but the beginning of a much more interesting period. Forty years of falling rates lifted all assets together, making passive ownership of "the entire market" a winning strategy. Now, valuation, balance sheet quality, and real cash flow come to the forefront.

He cites JPMorgan data: at current valuations, the ten-year return of the S&P 500 index could be close to zero. This, in his view, makes the market a rich field for the active investor but destroys the "buy and hold" model.

Risk for Bitcoin: Short-Term Pressure and Long-Term Opportunity

For Bitcoin, both signals primarily carry short-term risk. If liquidity dries up and conditions tighten, Bitcoin, as a liquidity-sensitive high-risk asset, risks coming under pressure alongside overvalued stocks. Correlation with the Nasdaq could return with renewed force during such periods.

However, in the long term, within Borje's logic, there is also a flip side. If the old model of "buy the index and hold" 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.

Cryptalist's Opinion: The market is entering a phase where the "tidal wave" of liquidity no longer lifts all boats. For Bitcoin, this means its price will depend more on its own fundamental factors (on-chain metrics, adoption, halving) rather than on the general inflow of capital into risk assets. Short-term volatility and correction are quite likely, but it is precisely in such conditions that the strength of an asset as a long-term store of value is tested.