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Tom Lee Says Crypto Assets Have Surpassed the Hidden Bear Market Phase

Fundstrat co-founder, Tom Lee, states that half of the stock and crypto markets have already moved past the hidden bear phase. Short positions and liquidity withdrawals are at levels typically seen when the market is at its bottom, not at the cycle's peak.

Lee believes too many investors have already turned bearish, while historically, markets tend to move toward the most painful point for many. Raoul Pal also views this situation as a mid-cycle correction, not a cycle peak.

Hidden Bear Phase Has Already Occurred

Speaking on Fundstrat's research channel, Lee explained that software stocks have experienced significant declines. Cryptocurrencies, which are tied to reduced liquidity, are also following this downward trend.

According to his observations, short positions are now at levels usually seen during the peak of a bear market.

This condition is important because changes in investor positions happen faster than news reports. Sentiment shifts to more defensive, while key indicators begin to stabilize. Lee sees this difference more as a turning point in the past rather than the start of a deeper decline.

He distinguishes between cyclical credit pressures and systemic risks. The recent pressure on private credit, he says, is more like a credit cycle rather than a 2008 crisis. From his perspective, major banks can still withstand this rotation.

Macro Economy Setup Is Starting to Change Beneath the Surface

Real Vision founder, Raoul Pal, also shares a similar idea. He points to global M2 money supply reaching all-time highs and the US dollar weakening. The Institute for Supply Management readings continue to improve, and liquidity conditions in the US are turning positive.

“I don’t think this is the end of the cycle. I believe this is a mid-cycle correction,” Pal explained in an interview.

He highlights the Crypto Fear and Greed Index as the clearest sentiment indicator. The index has spent the longest time in history below the 10 mark.

Pal considers this number as a sign of a potential reversal, not a signal of continued decline.

Lee mentions that AI and tokenization are increasingly strengthening the structural case for blockchain. The infrastructure for stablecoin payments and on-chain settlement, he says, will serve as the foundation for AI agents on a large scale.

The overlap between AI and blockchain could attract capital into Bitcoin
BTCUSD
and Ethereum
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after macroeconomic pressures ease.

Whether this setup will ultimately move upward depends heavily on how quickly liquidity increases. Additionally, it also depends on whether sentiment continues to lag behind the available fundamental data.