Multi-angle analysis: Is global liquidity running out?

The post-pandemic fiscal dominance is coming to an end, the private sector will take over, the global liquidity cycle seems to be peaking, and the “devaluation deal” has reached its final stage? This article is from an article written by Michael Nadeau and is compiled, compiled and written by Vernacular Blockchain. (Synopsis: AWS glitches paralyze the coin circle: what exactly are we decentralizing?) (New York Times: The Trump family's 'dirtiest' currency circle is worse than Watergate) The post-pandemic era has been defined by fiscal dominance: an economy driven by government deficits and short-term Treasury bond issuance, with liquidity remaining high even as the Fed maintains high interest rates. Today, we are entering a phase of private sector dominance, where the Treasury is reclaiming liquidity through tariffs and spending restrictions compared to the previous administration: that's why interest rates need to come down. We examine the current cycle through the lens of global liquidity to highlight why the current round of “devaluation trading” has reached its final stages. Is fiscal dominance ending? We always want to “bottom” when everyone is “chasing up”. That's why all the recent talk of “devaluation trading” has caught our attention. Data: Google Trends We believe the timing of interest in the “devaluation trade” was a few years ago. At that time, the price of Bitcoin was $25,000 and the price of gold was $2,000. At that time, no one except cryptocurrency and macro analysts talked about it. In our view, this “deal” is almost complete. So our job is to understand the conditions that created it, and whether those conditions will continue to exist. What drove this deal? In our view, there are mainly two factors. 1. Treasury expenditures. During the Biden administration, we implemented a massive fiscal deficit. Data: US Treasury (US Treasury) Fiscal year 2025 just ended with a slight decline in the deficit: this is mainly due to increased taxes (tariffs) rather than reduced spending. However, the Big Beautiful Bill is expected to achieve spending cuts by cutting Medicaid and Supplemental Nutrition Assistance Program (SNAP) benefits. Data: KFF (Kaiser Family Foundation) cuts compared to current spending trajectories During the Biden administration, government spending and transfers continued to inject liquidity into the economy. But under the Great America Act, spending growth has slowed. This means that the government has less money to push into the economy. In addition, the government is pumping money out of the economy through tariffs. Data: FRED (St. Louis Fed Economic Data) The combination of spending restrictions (relative to the previous administration) and tariff increases means that the Treasury is now absorbing liquidity rather than supplying it. That's why we need to cut rates. “We will reprivatize the economy, revive the private sector, and shrink the government sector.” – Scott Bescent (Scott Bessent) 2. “Treasury QE”. To fund excessive spending by the Treasury during the Biden administration, we are also seeing a new form of “quantitative easing” (QE). We can observe this below (black line). “Treasury quantitative easing” supports the market by financing government spending through short-term notes rather than long-term bonds. Data: Global Liquidity Index We believe that it is fiscal spending and quantitative easing from the Ministry of Finance that have driven the formation of the “devaluation trade” and “everything bubble” that we have seen over the past few years. But now we are transitioning to a “Trump economy,” with the private sector taking over the baton from the Treasury. Again, that's why they need to cut rates. Activate the private sector through bank loans. As we enter this transition period, the global liquidity cycle appears to be peaking… The global liquidity cycle is peaking and falling Current cycle vs. average cycle Below, we can observe how the current cycle (red line) compares to the historical average period since 1970 (gray line). Data: Global Liquidity Index Asset allocation based on Mr. Howell. Howell's work on global liquidity indices, we can observe typical liquidity cycles and their fit with asset allocation. Commodities tend to be the last assets to fall, which is exactly what we see today (gold, silver, copper, palladium). From this point of view, the current cycle looks very typical. Data: Global Liquidity Index So. If liquidity is indeed peaking, we expect investors to rotate into cash and bonds as the environment changes. To be clear, this part of the process has not yet begun (the market is still “risk appetite”). Debt and liquidity According to the Global Liquidity Index, the debt-to-liquidity ratio of major economies reached its lowest level since 1980 at the end of last year. It is now rising and is expected to continue to rise until 2026. Data: Global Liquidity Index The rising debt-to-liquidity ratio has made it more difficult to service trillions of dollars of outstanding debt that need to be refinanced. Data: Global Liquidity Index Bitcoin and Global Liquidity Of course, Bitcoin has “heralded” the peak of global liquidity over the past two cycles. In other words, Bitcoin peaked a few months before liquidity peaked and fell back, seemingly anticipating the subsequent decline. Data: Global Liquidity Index We don't know if this is happening right now. But we do know that the cryptocurrency cycle has always followed the liquidity cycle. Fit with the cryptocurrency cycle Data: Global Liquidity Index Related reports JPMorgan Chase: Coinbase is expected to issue Base tokens, with a market capitalization of $34 billion! Interview with Deribit CEO: Why Binance Can't Beat Us, Roadmap After Being Acquired by Coinbase [Multi-angle analysis: Is global liquidity running out?] This article was first published in BlockTempo's “Dynamic Trend - The Most Influential Blockchain News Media”.