Liquidity is drying up, the era of bonds is over: what this means for Bitcoin
Financial markets are on the verge of a tectonic shift. Two independent analysts — Bull Theory and Thierry Borje — point to the same process: the familiar investment model based on cheap money and perpetual bond growth is coming to an end. For Bitcoin, as the asset most sensitive to liquidity, this creates both short-term risks and long-term opportunities.
Bull Theory: The Money in the System Has Run Out
According to calculations by analyst Bull Theory, the indicator of excess cash 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, inflation, and economic growth. It is this surplus that has traditionally fueled stock markets. Now, it simply does not exist.
When excess liquidity disappears, capital begins to flow from stocks into long-term bonds. The yield curve flattens, and historically, this has preceded a weakening of stock returns over the next 3–6 months. Notably, according to the analyst, the new Fed Chair Kevin Warsh is not the cause of this shift — the market itself has been pricing in tightening all year, and the Fed is merely "catching up."
The situation is exacerbated by overheated valuations. Stocks are currently expensive relative to bonds in a way that has occurred only 5% of the time over the past half-century. Meanwhile, retail investors continue to actively buy stocks: US equity exchange-traded funds recorded the second-largest weekly inflow in history. This means the foundation supporting prices is disappearing, and retail is entering precisely when that support is gone.
Borje: The 40-Year Bond Bull Market Is Over
Thierry Borje offers a different perspective on the situation. In his view, the main event is not happening with AI or cryptocurrencies, but with bonds, which lie at the core of nearly every "safe" portfolio.
Borje reminds us: in 1981, bond yields reached 14%, and by 2020, they had fallen to 0%. That was 39 years of declining rates, ending in the panic of the COVID-19 pandemic. At that time, the system flooded itself with liquidity, and the forty-year bond bull market quietly concluded just when everyone felt rescued.
According to him, this reversal is not the end of the game, but the beginning of a much more interesting one. For forty years, falling rates lifted all assets together, and passive ownership of "the entire market" beat the skill of selection. Now that the trend has reversed, valuation, balance sheet quality, and real cash flow are once again taking center stage. Borje cites JPMorgan data: at current valuations, the annualized return of the S&P 500 index could be near zero over a ten-year horizon, which, in his view, makes the market a rich field for the active investor.
What Does This Mean for Bitcoin?
For Bitcoin, both signals primarily carry short-term risk. If liquidity dries up and conditions tighten, Bitcoin, as a liquidity-sensitive risky asset, risks coming under pressure alongside overvalued stocks.
However, in Borje's logic, there is also a flip side: if the old model of "buy the index and hold" stops working, and traditionally safe bonds lose their status as a safe haven, some capital may eventually seek alternatives outside traditional markets. In such a scenario, Bitcoin could compete for a role as one of the assets of a new era, though this will not happen immediately and is far from guaranteed.
My conclusion: We are entering a period where passive investing ceases to be a winning strategy. For Bitcoin, this means increased volatility in the coming months, but potentially — a strengthening of its status as a hedging tool in a world where old anchors of reliability are losing their power. Investors should prepare for active management and careful asset selection.