Bitcoin has spent weeks pinned near $80,000, bouncing between hope and a hard floor while altcoins bleed and traders wait for the next shoe to drop. To most of the market, that looks like exhaustion. To Michael Howell, author of Capital Wars and one of macro’s most-cited voices on global liquidity, it might be something far more interesting: an early warning that the liquidity cycle is turning sooner than almost anyone expects.
“If you start to see treasury yields stabilizing or coming down, you would expect to see Bitcoin doing very well,” Howell said on Bankless, framing Bitcoin as “a very long duration asset” that is “very sensitive to changes in treasury yields.” His formal base case still puts the liquidity bottom in the second half of 2027. But in a note published the Friday before the recording, he raised the possibility that Bitcoin’s recent stability above roughly $70,000 is signaling the turn early — and he does not pretend to have resolved the contradiction.
That honesty is the most useful thing about the conversation. Howell does not sell certainty; he sells a map. And the map is worth reading closely, because it reframes almost everything the market thinks it knows about why yields are rising, who is really running monetary policy, and where the money goes when the cycle rolls over.
The liquidity cycle and the real economy move in opposite directions
Howell’s foundational model is counterintuitive: liquidity and the real economy run near-anticyclically, with the liquidity cycle leading the real economy by roughly 18 months on average. “All money that is anywhere must be somewhere,” he says. If it is in the real economy, it is not in financial markets.
Right now, liquidity is contracting — and Howell is emphatic that this is not primarily a central-bank tightening story. Financing has become harder, the yield curve is flattening against what he calls the “100% consensus view” at the start of the year that it would steepen, credit spreads are widening, and the Russell 2000 is “probably in a bear market as we speak.” The cause, in his reading, is fast nominal GDP growth pulling yields up.
The long-run anchor is arithmetic. Since Nixon closed the gold window in 1971, US federal debt has compounded at about 8.5% a year, global liquidity at a touch over 8.5%, and the gold price at a touch over 8.5%. The S&P 500 has done slightly better, near 9.5%. Ten-year Treasuries have returned near 6% and five-years near 5% — far short, and compounding makes the gap enormous. If debt grows roughly 8%, liquidity must too, which means the stock of global liquidity roughly doubles every decade at anything above 7% annual growth.
His conclusion is blunt: “Buy the dips and buy the bigger dips harder… Unless you think that those parameters change, you’ve got to be invested in things like gold, Bitcoin, and monetary inflation hedges.”
Yields are rising on growth, not a debasement panic
Here is where Howell picks a fight with the most popular macro narrative of the moment. The market’s story is that bond vigilantes are punishing Washington for fiscal profligacy, with rising yields a verdict on deficits and debasement.
Howell pulls the 10-year Treasury yield apart into two pieces: rate expectations (the implied terminal policy rate embedded in the term structure) and term premium (the risk premium for holding duration). His claim is that the entire rise sits in rate expectations, while term premium has gone sideways for two years.
“This is not about any deterioration in fiscal finances or any loss of faith in the Trump administration or Bessent or whatever,” he said. “This is all about strong economic growth.”
The cross-country evidence is the sharpest part of his case. US term premium is low and if anything falling, in line with German bunds and Chinese government bonds, while Japan, Britain, and France show rising term premium — France for obvious political reasons. A further chart overlays a four-quarter moving average of nominal GDP growth against the 10-year risk-adjusted yield, and the two lines “match almost exactly.”
He concedes that Treasury auction bid-to-cover ratios are falling from previously very high levels, but insists the optics overstate the problem: demand has concentrated among hedge funds rather than staging a broad buyer strike. “I’m not saying that demand is strong,” he said. “What I’m saying is that it’s not a factor that is causing yields to rise. Term premia are basically compressed flat and if anything falling.”
This is where he parts company with Ray Dalio, whose LinkedIn piece “The Numbers Behind the Bond Bear Market” argued the bond bear has far to fall, with 2027 more concerning than 2026 and 2028 riskier still, on a supply/demand case. Howell had not read the piece but inferred and rejected the argument on two grounds: Dalio likely assumes more inflation and faster nominal GDP than he does, and the dollar and Treasuries remain the only viable safe haven at scale. Gold and Bitcoin are too illiquid to absorb the allocation; Swiss francs are “a tiny little market”; even China’s trade surplus has to go into Treasuries, “surreptitiously through offshore agencies in Belgium or wherever.”
ClaimHowell’s positionDalio’s position (as Howell characterizes it)Driver of rising yieldsRate expectations from strong nominal GDPInflation and supply/demand imbalanceUS term premiumFlat to fallingRising / bond vigilantes active2027 outlookBonds may be a safe haven in a liquidity downswingWorse than 2026; 2028 worse stillLong-term bondsUnattractive; debasement hedges winSame conclusionSafe-haven status of USD/TreasuriesIntact — no alternative at scaleImplicitly questioned
On the long horizon the two converge: bonds are a poor long-term asset and debasement hedges win. On the short horizon, though, Howell thinks bonds could be the safe haven if the liquidity downswing continues — a meaningful difference for anyone positioning for the next 12 months.
The Fed and Treasury have quietly merged into one liquidity machine
Howell’s most consequential structural argument is that the Fed has changed operating regime without announcing it. Judging the Fed by the funds rate is a pre-2008 lens, he argues; the number central banks actually control precisely is the level of bank reserves.
About a year before this conversation, the Fed tried to shrink its balance sheet and slashed reserves. Repo spreads — SOFR less the Fed funds target — spiked, and “the Fed blinked and it blinked quickly.” It introduced Reserve Management Purchases, which Howell describes without flinching: “another form of QE… if it’s yellow and quacks, it’s a duck.” Since then bank reserves have flatlined, which he reads as deliberate, close management of money-market liquidity.
On the other side sits the Treasury. Howell argues Scott Bessent is not trying to push yields down but to reduce volatility — retiring off-the-run, illiquid Treasuries “often at 60 cents in the dollar,” a great deal for taxpayers, and replacing them with shorter-duration new debt. He dismisses media mockery of a $6 billion buyback in a $40 trillion market as missing the point; the New York Fed itself treats a liquid Treasury market as a policy priority. His term for the approach is “yield volatility control” rather than yield curve control.
He frames the whole regime as “Keynesian dominance” rather than fiscal dominance — economics for big-state economies, with the US moving “more towards the Chinese model than maybe many people would like.” The backdrop is a capital war with China that America “cannot lose.” Spending is funded through the bill market because banks are ready buyers of short-dated paper, and “if the banks buy government debt of any shape or size, that is monetization, and this is what’s happening in the system right now.” The expected cost is not hyperinflation but “an extra one, two percent on Main Street inflation.”
A four-phase clock that tells you what to own and when
Howell’s framework divides the cycle into four regimes — turbulence, rebound, calm, and speculation — moving clockwise around a clock face. The speculation phase typically runs 9 to 12 months, and he says the current one is at its normal length. The anomaly is not duration but the equity response.
RegimeLiquidity cycleReal economyEquitiesCreditCommoditiesBond durationTurbulenceTrough / turnPeak growth or just pastAvoidRe-enter when yields attractiveAvoidOwn — the only regime where duration is the tradeReboundRisingLosing momentum, not yet recessionOwn — outperform everything; tech strongestOwnNeutralAvoidCalmRisingRecession or just afterOwnTrimIncreasingAvoidSpeculationPeaking / rolling overStrongTop-sliceAvoidDominantStart a toe in the water
Industry rotation follows the same clock: technology wins on the upswing, financials late cycle, energy and commodities at the peak and immediate downswing, defensives through the downswing. Small caps outperform on the upswing, large caps on the downswing.
For crypto, Howell splits the asset class in two. Bitcoin behaves as a pure monetary-inflation hedge and should outperform the rest of crypto in a liquidity downswing, while altcoins behave more like real-economy technology assets and should outperform Bitcoin on the upswing — tradeable as an Ethereum/Bitcoin spread. That maps neatly onto what the market is already doing: Wintermute’s trading desk recently reported one-sided flows out of altcoins and into Bitcoin and Ether, with altcoin market value down 5.69% in a week while Bitcoin dominance climbed to 60%.
The one thing breaking the clockwork is earnings. Price/earnings multiples are compressing exactly as the model predicts — yields up, multiples down — but world earnings per share have arrived later and larger than normal. Tech has had two legs: first as a long-duration asset that outperformed as yields fell, then a second leg where multiples compress but an earnings kicker dominates. Howell admits he cannot say whether that earnings surge is temporary or a permanent regime shift, and flags it as the reason mega-cap tech has carried the market while everything else behaves like the Russell 2000.
Bitcoin is a high-octane liquidity proxy, and $70,000 is the line
Howell has measured Bitcoin’s sensitivity to global liquidity at roughly five times gold’s; gold’s elasticity is about 1.25, meaning a 10% liquidity rise produces a 12–15% gold rise. A 1% change in global liquidity has been associated with an 11% change in what he calls the “best basket” of Bitcoin, Ethereum, and Solana, per a July 28 note. He expects Bitcoin’s sensitivity to fall as it institutionalizes.
On the episode’s headline question he is careful. The Friday note raised the possibility, not the base case, that Bitcoin is an early warning of a liquidity turn. The conditions that would move him: Bitcoin holding above $70,000, plus evidence that bank reserves are being managed and perhaps pushed up. A break below $70,000 would be “a game-changer” against the bullish read.
“I hesitate to say that it’s actually signaling an upturn in liquidity because I’m not sure that it is, but I’m not 100% sure of that,” he said.
On sizing, he recommends owning both gold and Bitcoin, weighted by volatility — more gold than Bitcoin to equalize risk — and increasing the Bitcoin weight over time as institutional adoption dampens volatility. Buy weakness; further weakness in coming months is plausible.
The technical picture around that level is instructive. Glassnode has flagged $87,000 to $87,800 as the resistance band that has capped Bitcoin, with heavy selling clustered near $90,000. Wintermute pegs $82,500 as the near-term floor, with a slide below it opening a path back toward $70,000 — precisely the line Howell has drawn. The difference is that where traders see a support level, Howell sees a macro signal.
Gold is a China-liquidity trade first, a debasement hedge second
Howell challenges the standard story that gold’s 2022 breakout came from central-bank buying after the Russia sanctions. His chart of PBOC money-market liquidity — currently just shy of 40 trillion yuan — against dollar gold shows the metal tracking Chinese liquidity injection from early 2022 until China slowed expansion at the start of this year, which he speculates was tied to Iran tensions and a desire not to spike oil prices. A second chart of six-week changes in gold and PBOC liquidity, with PBOC advanced a couple of months, shows a correlation close enough to “make people sit up.” He concedes it may be spurious.
At around $4,100 an ounce, his guidance is not a target price but a rule: buy weakness, because the long-run compounding does the work. If federal debt compounds at 8–9% and gold matches it, gold more than doubles over ten years. He expects forced monetization everywhere — the ECB bailing out France via “whatever it takes” is, in his words, a certainty. He also argues gold can no longer be confiscated the way Roosevelt did in the 1930s, because it is too widely dispersed through ETFs across jurisdictions.
The AI boom is real. The AI trade is the risk.
Howell calls AI a genuine revolution on the scale of the internal combustion engine, the jet engine, or the washing machine — and simultaneously the source of the earnings anomaly distorting his equity model.
His historical analogy is Global Crossing, the fiber-optic darling that was in Chapter 11 within five years as fiber prices collapsed 80% — even though the cable is still in the ground and the world still benefits. Competition, including from China, is the mechanism that can destroy the capital while the technology wins.
He agrees rising yields and a tougher funding backdrop are a real catalyst risk for AI debt. The CoreWeave scare — bond investors pricing roughly a 50% five-year default probability on some of its debt — is the kind of stress he expects high-yield borrowers to face as “the liquidity tide goes out.” The funding demand is not just new tech issuance: government gross issuance and refinancing, plus the COVID-era debt maturity wall termed out at near-zero rates, all hit the market at once. But his conclusion loops back to the Dalio disagreement: in a financial-stress scenario, the asset to own is government debt, with credit spreads widening as corporate yields blow out against flat or falling Treasury yields.
The MOVE index is the number that makes or breaks the whole thesis
Howell’s practical dashboard centers on bond volatility, because collateral haircuts at dealer banks are set by it: higher volatility means higher haircuts, a lower collateral multiplier, and less liquidity creation. His rule-of-thumb readings for the MOVE index:
MOVE levelHowell’s interpretation~70Normal zone; roughly 7% annualized bond volatility across the curve~100Roughly 10% annualized bond volatilityAbove 90Liquidity creation is impaired — collateral multiplier fallsAbove 135Almost always consistent with real-economy recession
“Anything above 90 basically means that you get a fall in the collateral multiplier,” he said. “If you get above 135 it’s almost always consistent with recession in the real economy.”
He says the market is close to the first threshold and nowhere near the second, but bond volatility is spiking and there are attempts to contain it. The falsification test for his Treasury-QE thesis is specific: if Treasury buybacks increase in frequency and size, “case proven.”
On inflation measurement, Howell says his personal inflation rate in Europe runs well above official figures and always has. He suspects a deliberate downward bias in the statistics, invoking Goodhart’s law — once a measure becomes a target it ceases to be a good measure — and calls the idea of a Warsh-led committee reviewing CPI stats “another way of fogging the whole question.” His preferred real measure is consumer confidence: low confidence is itself telling you inflation is a problem. He notes TIPS yielding around 3% real are a rare and attractive deal, government-underpinned, and worth a hedge allocation.
The unresolved tension in the conversation is temporal. Howell’s framework says the liquidity cycle bottoms in late 2027 and turbulence comes first; his own observation of Bitcoin’s stability and the Fed’s reserve management says the turn may already be starting. He holds both without resolving them. The second tension is the earnings anomaly: if AI-driven earnings growth is permanent rather than a lag, the equity leg of his clock-face model is mis-specified, and the speculation phase could run longer than his cycle work predicts.
For investors, that leaves a genuinely conditional map rather than a forecast. Watch $70,000 on Bitcoin. Watch whether bank reserves are being managed upward. Watch the MOVE index for a break above 90. Watch whether Treasury buybacks grow in size and frequency. If those line up, the liquidity tide turns earlier and shallower than the consensus base case — and the assets that have compounded at roughly 8.5% a year since 1971, gold and Bitcoin chief among them, are where the money goes. If they do not, bonds become the safe haven, credit spreads blow out, and the turbulence phase Howell has been warning about arrives on schedule.
