Bitcoin Faces High-Risk Environment Amidst Credit Market Stress
By John Nada·Feb 25, 2026·8 min read
Bitcoin is entering a high-volatility phase as macroeconomic factors pressurize credit markets, impacting risk assets significantly.
Bitcoin is entering a period where macro sequencing matters more than narrative. Equity markets are trading near record valuations, real yields remain elevated, and credit markets are expanding into increasingly opaque corners of the financial system. None of these conditions guarantees an imminent break. But together they form the backdrop for what could become a high-volatility window for risk assets. For Bitcoin, the key question centers on whether stress emerges in the financial plumbing beneath elevated asset valuations and how quickly policymakers move to contain it.
Macro strategist Michael Pento describes the current setup as a 'triple bubble': equities priced near historic extremes, housing constrained by mortgage rates near 6%, and private credit racing toward $2 trillion in assets under management. This characterization of the market highlights the precariousness of the current financial environment, with each component of this 'bubble' creating interdependencies that increase systemic risk. The label is provocative, but the framework is useful because it emphasizes sequencing. If credit fractures first, liquidity evaporates, and Bitcoin likely sells off alongside everything else. If policy support arrives before a fracture spreads, Bitcoin may instead behave as a high-beta liquidity trade, rebounding faster than traditional risk assets.
The system rarely breaks because valuations look stretched. It breaks when credit and bond plumbing force selling, and Bitcoin’s 24/7 liquidity means it trades both the panic and the rescue harder than almost anything else. Recent data shows stress signals accumulating without yet tripping a fracture. The ICE BofA US High Yield option-adjusted spread registered 2.95% on February 23, still tight relative to crisis regimes. This is an important indicator; while it suggests that credit markets are not under immediate duress, it also indicates that any sudden shifts could lead to rapid changes in market sentiment.
The Federal Reserve's balance sheet stood at $6.613 trillion on February 18, up roughly $28.8 billion over four weeks, a modest expansion that doesn't signal emergency liquidity. Elevated real yields, measured by the 10-year TIPS yield, hovered around 1.80% on February 20, high enough to continue exerting pressure on non-yielding assets like Bitcoin. The stablecoin market capitalization sat at approximately $308.8 billion, reflecting a 30-day change of -0.18%, essentially flat. This stagnation in stablecoin liquidity is particularly concerning, as it often serves as a barometer for market confidence and liquidity.
The interplay between credit markets and Bitcoin's price behavior can be illustrated through historical precedents. A deflationary liquidation typically begins in credit markets, not equity indices. High-yield spreads widen sharply, funding markets show stress, volatility spikes, and cash becomes the only position anyone wants. In these scenarios, Bitcoin's behavior is predictable: perpetual funding rates flip negative, open interest dumps as leveraged positions unwind, stablecoin supply contracts as liquidity exits the system, and ETF outflows accelerate. The events of March 2020 offer a clean historical anchor. Bitcoin collapsed nearly 40% on March 12 during the global liquidity shock, selling off alongside equities, credit, and commodities as participants scrambled for dollar liquidity. A credit-driven liquidation can easily produce -20% to -40% moves in Bitcoin within days, amplifying the risk for investors in a highly interconnected market.
VanEck noted in early February 2026 that Bitcoin futures open interest peaked above $90 billion in October, and the market has since shed more than 45% of peak leverage, leaving room for further forced selling if credit stress materializes. This reduction in open interest indicates that traders are unwinding positions, reflecting a risk-off sentiment that can exacerbate price declines in times of financial stress. Moody's expects private credit assets under management to surpass $2 trillion in 2026 and approach $4 trillion by 2030, with Bank of America reportedly committing $25 billion to the space. This growth concentrates credit risk in less-transparent structures with longer lockups and weaker covenant protections, raising the stakes for potential credit events that could trigger forced asset sales.
If a credit event triggers forced asset sales in private credit portfolios, the ripple effect can hit public markets through collateral calls and margin pressure. Bitcoin, as the most liquid 24/7 risk asset, absorbs selling disproportionately, leading to more significant price swings. Conversely, if visible policy support emerges before a fracture spreads, Bitcoin tends to behave like a high-beta liquidity asset. This was evident during the March 2023 banking turmoil when Bitcoin surged as expectations shifted toward easier policy. The rapid price movements underscore Bitcoin’s role as a risk asset that responds more dramatically to macroeconomic shifts than traditional assets.
The current macro setup reveals stretched valuations, elevated real yields, and persistent ETF outflows. Bitcoin's next major move hinges less on whether a bubble exists and more on the timing of credit breaks versus Fed interventions. If credit fractures without a rapid policy pivot, Bitcoin could face a challenging environment where neither liquidation nor rescue pathways dominate. The implications of this scenario are significant, as Bitcoin’s price could be trapped in a choppy range, responding to conflicting signals from inflation and monetary policy.
A monitoring framework that tracks the liquidity backdrop combines four inputs: changes in Fed total assets, stablecoin market capitalization, high-yield spreads, and real yields. Current readings suggest a neutral-to-negative liquidity backdrop, indicating that markets are poised for stress but have yet to experience a credit plumbing failure that forces selling. The actionable indicators for tracking credit and crypto plumbing are crucial. A rise in high-yield spreads from tight levels could signal eroding confidence in credit markets, while a flat or declining Fed balance sheet amidst widening spreads confirms a lack of backstop.
On the crypto side, a significant drop in open interest and declining stablecoin market capitalization also highlight liquidity exiting the system. Ultimately, Bitcoin's relationship with macroeconomic conditions underscores the importance of timing in its trading dynamics. The potential for forced liquidations or policy rescues shapes the market's sentiment. As investors navigate this precarious environment, the implications for Bitcoin remain significant, with the asset continuing to respond to shifts in liquidity and market confidence.
The triple bubble thesis is most useful not as a prediction but as a sequencing framework. Credit fractures force liquidations, during which Bitcoin trades for pennies on the dollar. Policy rescues create liquidity surges, with Bitcoin front-running traditional assets. The current macro setup, consisting of stretched valuations, elevated real yields, tight credit spreads, flat stablecoin supply, and persistent ETF outflows, suggests markets are positioned for stress but haven't yet experienced the credit plumbing failure that forces selling. Bitcoin's next major move depends less on whether a bubble exists and more on whether credit breaks before the Fed rescues it.
The messiest scenario is one in which inflation remains sticky, bond markets demand higher term premiums, and real yields remain elevated, limiting policymakers' ability to deliver a swift rescue without reigniting inflation concerns. In this regime, Bitcoin could exhibit choppy price action, oscillating between risk-off pressure and debasement narratives. Rallies may fade when real yields prove sticky, or when policy support disappoints. The macroeconomic landscape will play a crucial role in determining Bitcoin's trajectory as it navigates this complex interplay of factors.
As we monitor the evolution of the credit market and its implications for Bitcoin, a simple framework for tracking which regime is active combines four inputs refreshed weekly: the change in Fed total assets over four to eight weeks, the change in stablecoin market capitalization over 30 days, the change in high-yield spreads over two to four weeks, and the change in 10-year real yields over two to four weeks. When the score plunges, Bitcoin tends to trade like a high-beta asset during a liquidity event. When the score turns up, Bitcoin tends to outperform as reflation expectations build. Current readings suggest a neutral-to-negative liquidity backdrop, with the Fed's balance sheet up modestly but not surging, stablecoin supply flat to slightly down, credit spreads remaining tight, and real yields elevated and sticky. Bitcoin spot ETFs are seeing sustained outflows, and derivatives open interest has fallen by nearly half from its peak, indicating a market waiting for a catalyst.
The current environment is fraught with uncertainty, as the balance between credit risk and policy support remains delicate. Investors must stay attuned to market signals that could indicate shifts in liquidity and risk appetite. The transition from liquidation to rescue often happens fast, as seen in March 2020 when Bitcoin collapsed and rebounded within weeks as policy support materialized. In this high-stakes game, understanding the dynamics of the credit market and their implications for Bitcoin will be crucial for navigating the potential volatility ahead.