If Russell Napier is right - we are really moving towards national capitalism, and capital will flow back on a large scale to real investments - then why does the liquidity in the crypto market now resemble the Sahara Desert? Shouldn't it be the opposite? I'll first put Napier's two sentences in front of me as a motto:
1. "We are moving towards a national capitalism system."
2. "We will see a large-scale return of capital investment."
Russell Napier is one of the contemporary economists who emphasizes financial history the most. He has long studied the monetary and credit cycles in high debt environments, focusing on two widely cited reports: (We are moving towards a national capitalism system) and (We will see a large-scale return of capital investment).
He believes that when the public debt/GDP of developed economies remains high (the current US figure is about 122%, the Eurozone average is over 90%, and Japan is at 270%) and fiscal deficits cannot be quickly narrowed, the globalization-led 'shareholder capitalism' will give way to 'national capitalism.' The state will re-nationalize or quasi-nationalize through the financial system, directing capital towards domestic real investments through negative real interest rates, capital controls, credit rationing, industrial policies, and tariff barriers, gradually 'washing away' debt through inflation. This is what he refers to as the '2.0 version of financial repression.'
Napier repeatedly cites the UK, the US, France, Japan, and Italy from 1945 to 1979 as historical templates, believing that today's world is re-enacting that forgotten 30 years.
He anticipates that this period of repression will last 15-20 years, until the mid-2030s, achieving nominal GDP growth of 6%-8% through engineered inflation (4%-6%), while interest rates are kept at lower levels.
It is within this framework that I attempt to explain a seemingly contradictory phenomenon:
If Napier's prophesied 'large-scale return of capital investment' has already begun, why is the liquidity in the crypto market in the fourth quarter of 2025 experiencing the most severe exhaustion in the past two years? The order book depth has shrunk by 70%, the market value of stablecoins has evaporated by nearly $10 billion in two months, Bitcoin spot ETFs have seen continuous net outflows, and the average size of leveraged liquidations has remained at $800 million to $1 billion—this all sounds incongruent with 'capital return.'
The answer lies in the three classic characteristics of financial repression: time lag, selectivity, and fragmentation.
First, the time lag.
Historically, financial repression has never been completed overnight. There was a full 25 years between the UK's peak debt in 1945 and the uncontrollable inflation of the 1970s; Japan took 20 years from 1945 to 1965 for the 'Income Doubling Plan' to fully take effect. Today, the US debt/GDP is only 120%, far from the 260% of the UK at the end of World War II, so the force of repression is still in the 'moderate stage.' Capital has indeed flowed back, but it is first returning to the most urgent local gaps: AI data centers, power grid upgrades, semiconductor factories, energy inventories—these areas absorbed over $2 trillion in institutional and sovereign funds by 2025. The crypto market, as a high-beta and the most globalized asset class, naturally falls to the end of the line.
Second, selectivity.
Napier emphasizes that under national capitalism, capital flows are no longer allocated indiscriminately by the market but are based on a 'national priority list.' Assets that can quickly be labeled as 'local' benefit first: RWA (real-world asset) tokenization, US treasury bonds, industrial bonds, private equity funds for infrastructure; assets that still carry strong 'decentralized' and 'borderless' characteristics are temporarily marginalized. While BlackRock is reducing its holdings in Bitcoin spot ETFs, it has scaled the BUIDL fund to nearly $700 billion, which reflects this selectivity—they are not leaving crypto, but waiting for crypto to be transformed into 'American crypto.'
Third, fragmentation.
Financial repression is inevitably accompanied by capital controls and regional barriers. Since 2025, the US (Genius Act) draft, EU MiCA secondary legislation, China's ongoing crypto ban, and Japan's national debt yield breaking 1.8%, leading to the collapse of the yen carry trade, have collectively sliced global liquidity into mutually disconnected segments. The crypto market, being the most reliant on cross-border arbitrage, naturally feels the first impact of 'drying up.' History tells us that the complete lifecycle of financial repression typically contains four stages:
1. Liquidity is withdrawing from high-risk assets (current stage)
2. Negative real interest rates and credit rationing will be fully rolled out (expected 2026-2028)
3. Inflation continues to exceed nominal interest rates by 5-8 percentage points, and debt is slowly 'melting away' (2028-2033)
4. The repression may end with a currency crisis or a proactive policy shift (after 2033)
We are currently still in the transition period from the end of the first stage to the beginning of the second stage. In the second half of 2026, as the US strategic Bitcoin reserve bill may be implemented, the (Genius Act) officially takes effect, and fiscal deficits continue to remain high in major economies, liquidity will show directional changes:
1. Bitcoin and Ethereum, as 'digital gold' and 'digital oil,' will be redefined as strategic assets, gaining implicit endorsement from national credit.
2. RWA, compliant staking, on-chain treasury bonds, and bank custody products will become the main channels for institutional capital flow back.
3. Purely speculative altcoins and memecoins will continue to be marginalized, even facing stricter regulation.
At that time, the total liquidity of the crypto market may be higher than the peak of the 2021 bull market, but the composition of participants, the rules of the game, and the logic of wealth distribution will be completely rewritten. Just like the UK from 1945 to 1979, where the stock market nominally rose tenfold over 30 years but lagged behind inflation, the real winners were those holding physical assets and regulated dividends—“the national team.”
Napier's historical research provides a bleak yet clear conclusion:
In the era of financial repression, the most dangerous thing is not the decline in asset prices, but the misjudgment of the flow of funds.
Today's liquidity exhaustion is not the end of the crypto story, but the end of an old story and the prologue to a new one.
When the tide finally comes back, it will carry a distinct national flavor and a higher water level, but those standing on the shore will no longer be the same group of people.