Bitcoin enters high-risk territory as credit stress mounts under record 206% stock bubble

Bitcoin is entering an era where macro order is more important than narrative.

Stock markets are trading near record valuations, real yields remain high, and credit markets have expanded into an increasingly opaque part of the financial system. None of these terms guarantee any impending interruption. But together they form a backdrop that can be a window of high volatility for risk assets.

In the case of Bitcoin, key questions center on whether stress will emerge in the financial plumbing under rising asset valuations, and how quickly policymakers will act to contain the stress.

Macro strategist Michael Pent describes the current situation as a “triple bubble.” Stock prices are at near-historic extremes, housing is constrained by mortgage interest rates close to 6%, and the private sector is competing for credit with the aim of achieving $2 trillion in assets under management. Although labels are provocative, this framework is useful because it emphasizes ordering.

If trust collapses first, liquidity could evaporate and Bitcoin could be sold off along with everything else. If policy support is obtained before the rift widens, Bitcoin could instead behave as a high-beta liquidity trade and rebound faster than traditional risk assets.

Systems rarely break because valuations appear excessive. Credit and bond plumbing collapses when forced to sell, and Bitcoin’s 24/7 liquidity means both panic and bailouts are harder to trade than most.

Recent data indicate that stress signals are still accumulating without fractures occurring.

Adjusted spreads for ICE BofA US high yield options hit 2.95% on February 23, still tight compared to the crisis regime.

The Federal Reserve’s balance sheet was $6.613 trillion as of February 18, an increase of about $28.8 billion in four weeks, but this is a gradual expansion that does not indicate emergency liquidity.

Real yields, as measured by 10-year TIPS yields, hovered around 1.80% as of February 20, rising enough to put pressure on non-yielding assets. The stablecoin market capitalization remained at approximately $308.8 billion, with a 30-day change of -0.18%.

The Spot Bitcoin ETF has recorded a total of about $2.6 billion in outflows since the beginning of 2026, with about $4.3 billion lost in five weeks.

Bitcoin sold first, questions asked later

Deflationary liquidation begins in the credit market, not in stock indexes.

High-yield spreads widen rapidly, funding markets show stress, volatility spikes, and the only position anyone wants is cash.

Bitcoin movements during these windows are predictable. Permanent funding rates turn negative, open interest is dumped as leverage positions are unwound, stablecoin supply is contracted as liquidity leaves the system, and ETF outflows accelerate.

March 2020 provides a clean historical anchor. On March 12, amid a global liquidity shock, Bitcoin plummeted by nearly 40%, selling off along with stocks, credits, and commodities as participants scrambled for dollar liquidity.

Credit-driven liquidations can easily cause Bitcoin to fluctuate by -20% to -40% within a few days.

Van Eck noted in early February 2026 that open interest in Bitcoin futures peaked in October at over $90 billion, and the market has since reduced more than 45% of its peak leverage, leaving room for further forced selling if credit stress materializes.

Moody’s expects private credit assets under management to exceed $2 trillion in 2026 and approach $4 trillion by 2030, and Reuters reports that Bank of America has committed $25 billion to the sector.

This growth concentrates credit risk in opaque structures with long lock-ups and weak covenant protection.

If a credit event triggers a forced asset sale of a private credit portfolio, the ripples will affect the public market through collateral calls and margin pressures. And as the most liquid risk asset 24/7, Bitcoin absorbs a disproportionate amount of selling.

Bitcoin at the forefront of policy response

The reverse sequence begins with visible policy support.

The Fed’s balance sheet will expand, emergency facilities will come into play, and real yields will fall. Bitcoin’s reaction in these regimes is similarly predictable. Funding and basis normalize, stablecoin supply increases as liquidity returns, ETF flows stabilize or turn positive, and open interest rebuilds.

In a tangible rescue regime, Bitcoin often behaves like a high-beta liquidity trade, with no credit risk and no disappointing returns, and recovers faster than traditional risk assets. This acts as a liquid claim against a fixed supply financial asset that benefits when real yields decline.

The March 2023 banking disruption provides that template. Bitcoin rose 26% in one week and nearly 40% in 10 days as bank stress changed expectations for policy easing and ushered in eventual liquidity support from the Fed.

In February 2026, Bitcoin soared from about $60,000 to more than $70,000 in a single day, its biggest single-day gain since March 2023, highlighting how macro risk sentiment remains a dominant factor during stress windows.

Bitcoin crashed along with everything else in March 2020, at the same time the Fed cut interest rates to zero, began unlimited quantitative easing, and established an emergency lending facility within weeks.

As real yields remained sharply negative and government spending soared, Bitcoin recovered from its March 12 lows and quintupled over the next year.

The lesson is that Bitcoin trades liquidity cycles with a higher beta than most other assets, and timing is more important than narrative.

If neither path is dominant

The most troubling scenario is one in which inflation remains persistent, bond markets demand higher term premiums, and real yields remain high, limiting policymakers’ ability to provide quick relief without reigniting inflation fears.

In this regime, Bitcoin is chopped. Risk-off pressures compete with degrading hedging narratives. If real yields turn out to be strong or policy support disappoints, the rally subsides.

The 10-year TIPS yield of 1.80% is well above the zero-to-negative real yields that characterized Bitcoin’s strongest period.

Freddie Mac’s 30-year fixed mortgage interest rate averaged 6.01% as of February 19th.

According to Advisor Perspectives, the Buffett index is around 206%, the highest level in series history, suggesting there is little room for multiple expansions in stock valuations absent earnings growth or a decline in discount rates.

If credit stress arrives without a swift policy shift, Bitcoin will face a regime with no dominant path to liquidation or rescue.

Tracking migration

A simple framework for tracking which regimes are active combines four inputs that are updated weekly. That is, the change in Fed total assets over 4-8 weeks, the change in stablecoin market cap over 30 days, the change in high yield spread over 2-4 weeks, and the change in 10-year real yield over 2-4 weeks.

When the score plummets, Bitcoin tends to trade like a high-beta asset during liquidity events. As the score increases, Bitcoin tends to outperform as reflation expectations increase.

Current readings suggest a neutral to negative liquidity background.

The Fed’s balance sheet is rising slowly, but not rapidly. Stablecoin supply is flat to slightly decreasing. Credit spreads remain tight. Real yields are rising and persistent. Outflows from Bitcoin spot ETFs continue, with open interest in derivatives falling to nearly half of its peak.

This situation is similar to a market awaiting a catalyst, either credit stress that forces liquidations or policy support that reinvigorates liquidity trading.

Tell arrives at credit plumbing

A practical monitoring framework focuses on credit and cryptocurrency plumbing. The rise in high-yield spreads from tight levels suggests that credit market confidence is weakening.

Government bond volatility and term premium pressures reveal whether bond markets are pricing policy flexibility or constraints. The flat or declining Fed balance sheet despite widening spreads confirms the lack of a backstop.

On the crypto side, a sharp drop in open interest indicates a forced sell. The shrinking market capitalization of stablecoins indicates that liquidity is being drained from the system. The continued outflow of ETFs confirms the institutional risk-off attitude.

Confirmation of rescue comes through various channels.

The significant increase in the Fed’s total assets from the previous week suggests that it is actively providing liquidity. The rollover in the 10-year TIPS yield indicates that real yields are falling. The increase in stablecoin supply in parallel with the normalization of derivatives funding supports the return of liquidity to the crypto market.

The transition from liquidation to rescue often happens quickly, as in March 2020 when Bitcoin collapsed and rebounded within weeks as policy support materialized.

Triple bubble theory is most useful as an ordering framework, not as a prediction.

A credit bust forces a liquidation, during which Bitcoin trades for pennies against the dollar. Policy bailouts have caused a surge in liquidity, with Bitcoin leading the way among traditional assets.

The current macro environment, consisting of high valuations, rising real yields, tight credit spreads, stable stablecoin supply, and sustained ETF outflows, suggests that while the market is under stress, we have not yet experienced a breach in the credit pipeline that would force a sell-off.

Bitcoin’s next big move depends less on whether a bubble exists and more on whether credit collapses before the Fed bails it out.