Michael Howell: Bitcoin holding $70K could flag an early liquidity turn

Bitcoin's stability as a liquidity signal

Michael Howell, author of Capital Wars, returned to Bankless to revisit a Friday post in which he floated the idea that Bitcoin's recent stability could be an early warning that the global liquidity tide is turning. He was careful to hedge this: "I hesitate to say that it's actually signaling an upturn in liquidity because I'm not sure that it is." Howell's base case remains that liquidity won't bottom until the second half of 2027, with a turbulent phase still ahead, but he says Bitcoin holding above a key level is worth watching as a possible early indicator of a shorter, shallower downturn.

He flagged $70,000 as the line that matters: if Bitcoin holds there and bank reserves keep being managed upward, he says he would "happily change my view and expect to see liquidity picking up." A break below that level, he said, "would be a gamechanger for me" in the bearish direction.

Why Treasury yields are rising

Howell argued that rising yields are driven by rate expectations tied to strong nominal GDP growth, not by deteriorating fiscal health or weak auction demand. He pointed to term premia as flat or falling in the US, contrasting with rising term premia in Japan, Britain and France. "This is all a growth story," he said, dismissing the popular narrative that bond vigilantes are punishing US fiscal profligacy.

He acknowledged that bid-to-cover ratios at auctions have fallen and that demand is concentrated among hedge funds, but maintains this isn't showing up as rising term premium, which he says would be the real tell of fading investor confidence.

Howell vs Dalio on bonds

The host raised Ray Dalio's recent piece arguing the bond bear market has further to run into 2027-2028 due to rising supply and falling foreign demand. Howell said he hadn't read the piece but pushed back on the idea that Treasuries are losing safe-haven status: "Do you really want to risk putting money into the euro given what's happening on the streets right now?" He argued bond markets are too large and liquid to be replaced by gold or Bitcoin at scale, though he agreed with Dalio on a longer horizon that bonds are an "unattractive long-term asset."

Treasury QE and the Fed-Treasury "accord"

Howell described what he calls "Treasury QE": the Fed and Treasury effectively coordinating to keep bank reserves ample and reduce bond market volatility rather than targeting yield levels. He pointed to the Fed's "reserve management purchases" after a reserve shortage roughly a year ago as a clear example, saying "if it's yellow and quacks, it's a duck... this is a duck for sure." He also argued Bessent's bond buybacks and tilt toward bill issuance are aimed at reducing volatility, not altering yields, retiring old debt "at 60 cents on the dollar, which is a great deal for the US taxpayer."

He frames this as "Keynesian dominance" rather than fiscal dominance, saying the US is "moving more towards the Chinese model" of state-directed economics, with the Fed and Treasury funding spending jointly—effectively monetization, though not hyperinflationary: "it may be an extra 1-2% on main street inflation, that's for sure."

Four-phase liquidity cycle and AI's anomaly

Howell laid out his four regimes—rebound, calm, speculation, turbulence—arguing markets are near the end of a roughly 9-12 month speculation phase. He said bonds and commodities have behaved exactly as his framework predicts, but equities have been anomalous: tech earnings came through later and bigger than normal, propping up valuations. He couldn't say whether this earnings surge is sustainable or a temporary anomaly.

He called AI "a revolution" but separated that from financial market returns, invoking the Global Crossing fiber-optic bust as a cautionary parallel where the technology survived but capital was destroyed. He also flagged refinancing of COVID-era cheap debt and heavy AI/tech debt issuance as risks if funding conditions tighten further.

Gold and China's role

Howell argued Chinese PBOC liquidity injections, not Russia sanctions or a generic "debasement" narrative, are the main driver of gold's rally, showing a correlation between PBOC liquidity stock and gold prices with a roughly two-month lag. He said fair value for gold is "if gold goes down, buy more," expecting it to keep compounding near historical 8-12% annual rates alongside global debt growth.

"China has to print money and the Chinese love gold. That's all you need to know." — Michael Howell

Bitcoin's leverage to global liquidity

Howell said Bitcoin's sensitivity to global liquidity has historically run far higher than gold's, though that multiplier is falling as Bitcoin institutionalizes. He cited a July 28 note stating a 1% change in global liquidity is associated with an 11% change in a basket of Bitcoin, Ethereum and Solana. He expects global liquidity, currently around $196 trillion by his index versus roughly $185 trillion a year ago, to keep compounding near 8% annually, implying it could double within about a decade—with Bitcoin and gold moving similarly or more.

"Buy the dips and buy the bigger dips harder." — Michael Howell