Tom Lee: Crypto and Half of Stocks Passed Hidden Bear
Tom Lee says about half of the U.S. equity market and crypto passed a ‘hidden’ bear in 2026 as short positions and liquidity withdrawals reached levels typical at market bottoms.
Tom Lee, co-founder of Fundstrat, told Fundstrat’s research channel that roughly half of the U.S. equity market and the crypto market moved through a “hidden” bear phase in 2026 as short positioning and liquidity withdrawals reached levels typically seen near market bottoms.
Lee linked deep drawdowns in software stocks to a liquidity unwind that also weighed on digital assets and noted that short positions are at levels usually observed at the height of past bear markets. He said market sentiment had turned defensive even as some leading economic indicators stabilized.
Lee characterized recent stress in private credit as consistent with a credit cycle rather than a repeat of the 2008 financial crisis and added that large banks could perform well during that rotation.
He pointed to structural trends including artificial intelligence and tokenization, arguing that stablecoin payment rails and on-chain settlement could become the payment infrastructure AI agents use at scale and that those connections could draw capital to Bitcoin and Ethereum if liquidity conditions improve.
Raoul Pal, founder of Real Vision, described the current period as a mid-cycle correction rather than the end of the economic cycle. “I don’t think it’s the end of the cycle. I think it’s a mid-cycle correction,” Pal said, citing global M2 money supply at record highs, a weakening U.S. dollar and signs of improving U.S. liquidity and manufacturing readings.
Market sentiment measures and fund flows highlighted the cautious tone in crypto. The Crypto Fear and Greed Index has spent an unusually long stretch below extreme-fear levels, most recently at 8. Digital-asset funds recorded about $445 million in outflows in a recent week, with Ether-focused funds accounting for roughly $222 million of those redemptions.
Both Lee and Pal connected recent price moves to shifts in positioning and liquidity rather than to a single macro event. Lee noted positioning shifted faster than headlines, while Pal pointed to high money supply and improving liquidity as factors that could support risk assets if investor sentiment catches up to the data.
Lee said the path for a market recovery will depend on the pace of liquidity expansion and whether sentiment aligns with underlying economic indicators.
