Epic signal! Once this "powder keg" of private credit detonates, $BTC will stage a textbook-level "panic crash first, then recovery rally on rescue measures" scenario!

The next bull run for $BTC may not start with the halving, but from a seemingly unrelated corner: the private credit market.

This is not because a private credit collapse will immediately benefit $BTC. On the contrary, during the first phase of a genuine liquidity crisis, high-liquidity assets like $BTC are usually among the first to be sold off along with other risk assets. Crises begin with liquidation, not rescue. The real logic lies in the second phase.

In a system with high debt, deep financialization, and political intolerance for long-term credit clearing, liquidity “withdrawals” rarely last long. When governments reopen the taps and inject liquidity, $BTC tends to understand this signal earlier and more keenly than almost any other asset.

Warren Buffett once described this scenario with a phrase: “You only find out who’s swimming naked when the tide goes out.” He also criticized private equity’s “revered fee structures and obsession with leverage,” warning that in rare moments, “credit can vanish instantly, and debt can turn into a deadly financial trap.”

He was not talking about $BTC at the time but diagnosing a financial system built on leverage, opacity, and confidence. This diagnosis is perfectly applicable to today’s private credit market. When the tide recedes, the hidden fragility becomes the market’s entire reality.

Estimates suggest that the private credit market will reach about $3 trillion by early 2025, possibly approaching $5 trillion by 2029. Warning signs are already emerging. Recently, some institutions imposed redemption restrictions on a private credit fund due to investor redemption requests nearing 11% of the fund’s total size.

Meanwhile, another large bank has written down some loans to private credit funds, and concerns about exposure in the software sector continue to rise. The focus is not on an immediate market collapse but on the shift from assumptions to reality, reflected in redemption limits, asset impairments, and changes in lending behaviors.

Artificial intelligence is a catalyst for this potential crisis. The core risk is not just leverage itself but leverage tied to an industry being re-priced in real time by AI. Some analyses indicate that about 25% of commercial development portfolios are invested in the software sector.

Given AI’s impact on the business models of the software industry, this proportion is remarkably high. The financing logic of the software sector has long been based on recurring revenue equaling stable cash flow. But AI is disrupting all this: squeezing pricing power, rapidly modularizing products, and narrowing competitive moats.

Much of the credit granted to private credit is based on a software business model that may already be outdated. This directly relates to $BTC. Overlaying $BTC’s price movements with those of software stocks and private equity stocks reveals a clear correlation: $BTC’s trajectory exhibits both software beta and liquidity beta characteristics.

Currently, these two forces are simultaneously suppressing it. AI forces the software industry into disruptive re-pricing, undermining the logic of $BTC as a high-growth tech asset class; and the tightening global liquidity cycle further suppresses its sensitivity to worldwide liquidity.

Therefore, cracks in private credit will not immediately benefit $BTC; in the short term, the effect is often opposite. $BTC’s liquidity, dispersed holdings, and ease of sale make it a priority for liquidation during market panic, where liquidity takes precedence over long-term narratives.

History confirms this rhythm. During the March 2020 “cash is king” panic, $BTC plunged over 20% in a single day and over 30% in five days. Then, as policy measures flooded the market, by January 2021, $BTC had risen more than 900% from its March lows.

The same script played out during the 2023 regional bank crisis in the US. After the Silicon Valley Bank turmoil, authorities provided guarantees, and the Fed launched a term funding program. Subsequently, $BTC climbed to a nine-month high and more than doubled before year’s end.

The core pattern remains consistent: $BTC often suffers during cash competition, then turns around to realize policy-driven market rescue benefits. This mechanism is especially critical now because the US financial system cannot sustain prolonged liquidity tightening.

With federal deficits high and public debt at over 101% of GDP, and the total US stock market value at about 219% of GDP, the reality of financialization is clear: sovereign debt is high, and asset markets far exceed the real economy.

In this environment, policymakers have little room to let liquidations happen entirely on their own. The close link between the modern economy and asset prices makes pure liquidation unsustainable. The Fed has already shown this reactive stance; even without a full-blown crisis, the system is moving back toward easing.

Once it’s understood that the financial system itself needs to reboot liquidity, it’s easy to see that when the next private credit crisis erupts, policymakers will almost certainly intervene. Politically, it’s even more certain.

When retail and wealth management funds are bundled into illiquid credit exposures, private credit ceases to be a niche institutional issue and becomes a public concern. When opaque risks evolve into public issues, government intervention is inevitable.

The $BTC white paper proposed a peer-to-peer electronic cash system. The famous inscription on the genesis block—“The Chancellor is in the second bank bailout”—reveals its political underpinnings. The white paper provides the technical architecture, while the genesis block carries political metaphor.

$BTC was born out of resistance to bailout culture, reliance on intermediaries, and arbitrary market interventions. Therefore, whenever governments step in to rescue fragile systems built on hidden leverage, $BTC’s fundamental logic becomes even stronger.

Meanwhile, financial infrastructure is moving toward 24/7 operation. The Fed has announced plans for its core payment system to operate on Sundays and holidays by 2028 or 2029. This signals an acknowledgment of a fact: the economy is becoming increasingly digital and continuous.

If AI agents become genuine economic participants, capital and collateral will need to flow at software speeds. This doesn’t mean every transaction must settle in $BTC, but that scarce, neutral, digital collateral will become even more important.

The tide Buffett spoke of is receding in the private credit market. AI is exposing the most fragile credit assets first. $BTC may be affected in the initial shock because it is viewed as both software and liquidity beta.

But with US debt excessive, financialization too deep, and retail funds tightly coupled with private assets, policymakers cannot tolerate long-term disorderly liquidations. Liquidity will return, and whenever it does, $BTC is often among the first assets to react.

Ironically, $BTC was born for moments like these: a world filled with shadow banking, hidden leverage, high government debt, and crises that can only be managed through liquidity injections. Private credit is not just a risk sector but a focal point of rigid valuations, embedded leverage, AI disruption, retail involvement, and policy reactions.

Recent redemption restrictions and asset impairments suggest that the adjustment process may already be underway. If private credit becomes the core of the next liquidity retreat, the next bull market for $BTC will start with risk exposure and policy rescue, culminating in market realization: the financial system still depends on liquidity injections.

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