Fundstrat co-founder Tom Lee says half the equity market and crypto already moved through a hidden bear phase. Short positioning and liquidity withdrawal sit at levels typically seen near market bottoms, not at cycle tops.
Lee argues too many investors have already turned bearish, with markets historically moving in the direction that inflicts the most pain. Raoul Pal frames the same setup as a mid-cycle correction rather than a cycle top.
Hidden Bear Phase Already Played Out
Speaking on the Fundstrat research channel, Lee said software stocks have already taken deep drawdowns. Crypto, tied to the same liquidity unwind, has tracked the move lower.
Short positioning, in his read, sits at levels typically seen at the height of a bear market.
That backdrop matters because positioning has shifted faster than headlines. Sentiment turned defensive while leading indicators stabilized. Lee sees that divergence as more typical of past inflections than the start of a deeper drawdown.
He drew a line between cyclical credit stress and systemic risk. Recent strain in private credit, he said, looks more like a credit cycle than a repeat of 2008. Large banks, in his view, can prosper through that rotation.
Macro Setup Turning Under the Surface
Real Vision founder Raoul Pal made a similar case. He pointed to global M2 at all-time highs and a weakening dollar. The Institute for Supply Management reading is improving, and US liquidity conditions are turning upward.
“I don’t think it’s the end of the cycle. I think it’s a mid-cycle correction,” Pal said in the interview.
He pointed to the Crypto Fear and Greed Index as the clearest sentiment marker. The gauge has spent its longest recorded stretch below 10.
Pal treats that reading as a reversal setup rather than a continuation signal.
Lee said AI and tokenization reinforce the structural case for blockchain. Stablecoin payment rails and onchain settlement, he argued, are the infrastructure AI agents will use at scale.
That overlap could pull capital toward Bitcoin (BTC) and Ethereum (ETH) once macro pressure eases.
Whether the setup resolves higher will depend on how fast liquidity expands. It will also depend on whether sentiment keeps lagging the underlying data.
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