Is Crypto in a Bear Market? Understanding the Disconnect Between Digital Assets and Global Markets

The crypto market appears caught in a historical divergence that defies conventional wisdom. While gold surged 60% in 2025, silver climbed an extraordinary 210.9%, and the Russell 2000 index gained 12.8%, Bitcoin’s 2025 performance ended in red territory. As 2026 unfolds, this pattern intensifies: by late January, gold and silver hit fresh peaks, small-cap stocks continued outperforming the S&P 500, yet Bitcoin continues its struggle. The question haunting investors isn’t merely whether crypto is in a bear market—it’s why institutional adoption, political endorsement, and massive capital inflows haven’t translated into the bull market everyone anticipated.

The Liquidity Crisis: Why Crypto Can’t Keep Up

When Bitcoin struggles while every other major asset rallies, the culprit often traces back to a single force: global liquidity conditions. Despite the Federal Reserve’s rate cuts in 2024 and 2025, quantitative tightening that began in 2022 continues systematically draining dollars from financial markets. This macro reality explains why crypto hasn’t generated the super bull market many expected.

Bitcoin’s 2025 highs were largely engineered by new ETF inflows from institutions like BlackRock and Fidelity—fresh money entering the ecosystem. However, these new funds haven’t offset the massive liquidity withdrawal happening at the macro level. Bitcoin currently trades at $88.69K with a year-to-date decline of -13.62%, reflecting this fundamental constraint. The crypto asset class, being purely liquidity-driven without exposure to earnings reports or specific national interest rates, becomes extraordinarily sensitive to overall money supply conditions.

The situation worsens when examining the world’s second-largest liquidity source: the Japanese yen. The Bank of Japan raised its policy rate to 0.75% in December 2025—the highest level in nearly 30 years. This shift is far from academic: yen carry trades had funneled enormous capital into global risk assets for decades. Historical data reveals a consistent pattern: all three Bank of Japan rate hikes since 2024 coincided with Bitcoin drops exceeding 20%. When the Federal Reserve tightens simultaneously with the BOJ, global liquidity conditions become genuinely constrictive.

Bitcoin as the Market’s Canary: Understanding the Leading Indicator Role

Raoul Pal of Real Vision has repeatedly emphasized that Bitcoin functions as the “leading indicator” for global risk assets. This positioning stems from a crucial characteristic: Bitcoin’s price reflects pure liquidity dynamics without being anchored to any nation’s financial reports or central bank rates. Consequently, Bitcoin often signals turning points before the S&P 500 or Nasdaq follow suit.

When Bitcoin fails to establish new highs after extended rallies, this absence constitutes a powerful red flag. The crypto market’s current consolidation below the $100,000 level for over three months—alongside dramatically muted volatility—sends a critical message: the underlying liquidity supporting risk assets more broadly may be weakening. The Russell 2000’s 45% surge from 2025 lows appears robust on the surface, yet these small-cap companies are notoriously sensitive to interest rate changes. Should Federal Reserve policy disappoint, their vulnerabilities would surface immediately.

This warning appears especially relevant given that global investor sentiment recently hit its highest level since July 2021, while cash holdings fell to a record low of just 3.2% according to Bank of America’s latest fund manager survey. These conditions historically precede market corrections—precisely the opposite environment where crypto usually thrives.

Geopolitical Uncertainty: The Shadow Over Risk Markets

Beyond liquidity mechanics lies a geopolitical dimension that market participants cannot ignore. The Trump administration’s early 2026 actions have introduced unprecedented uncertainty: military intervention in Venezuela, renewed tensions with Iran, attempts to force Greenland’s purchase, and escalating tariff threats against allies. Domestically, the administration’s proposals to rename the Department of Defense to the Department of War, combined with orders for active-duty troop deployments on standby, have triggered legitimate constitutional concerns.

This uncertainty creates what might be called “unknown unknowns”—situations where the market cannot form stable expectations. Traditional full-scale conflicts have relatively clear economic pathways and historically trigger monetary easing. But this gray zone of localized tensions, domestic unrest, and unpredictable executive actions offers no such clarity. For institutional capital managers unable to forecast outcomes, the rational response is to raise cash positions and reduce exposure to high-volatility assets like crypto.

Why Everything Else Is Rising: The Structural Bull Markets

Yet the broader market isn’t merely drifting higher on default momentum. Precious metals are rising because global central banks have become “price-insensitive buyers” seeking to diversify away from dollar-dependent reserves. The 2008 financial crisis and especially Russia’s frozen foreign exchange in 2022 demolished the myth of U.S. Treasury bonds as risk-free assets. Central banks now accumulate gold not for speculation but for ultimate value storage divorced from any sovereign credit dependency. World Gold Council data shows that in 2022 and 2023 combined, global central banks purchased over 1,000 tons of gold annually—a historic record. By 2025, gold reserves had actually exceeded U.S. Treasury holdings in many central bank portfolios.

Stock market rallies, particularly in the Russell 2000 and China’s A-shares, reflect something equally important: state-directed industrial policy. The U.S. Chips and Science Act elevated AI development to national security status. Capital has systematically flowed from mega-cap tech into smaller companies with greater growth potential that align with policy priorities. In China, the “Xinchuang” initiative and defense-industrial complex attract concentrated fund flows. These government-guided markets operate under pricing logic fundamentally divorced from market liquidity—the very force that propels Bitcoin.

Historical Precedent: When Bitcoin Rebounds from Oversold Conditions

Yet history offers cautionary lessons for those abandoning crypto. The Bitcoin-to-Gold RSI ratio—an extreme valuation metric—has fallen below 30 on exactly four occasions: 2015, 2018, 2022, and now in 2025. Each prior instance signaled a subsequent powerful rebound.

In 2015, at the bear market’s conclusion, Bitcoin’s RSI dropped to oversold levels relative to gold, followed by the spectacular 2016-2017 bull market. In 2018, as Bitcoin fell 40% while gold rose nearly 6%, the RSI signal again emerged. Following that low, Bitcoin subsequently surged over 770% from 2020 lows. The 2022 experience saw Bitcoin decline nearly 60%, yet the RSI’s oversold signal preceded strong recovery phases in 2024 and 2025, once again outperforming gold. Today, with gold surging 64% in 2025 while Bitcoin’s relative valuation has reached historic lows, this fourth major oversold signal warrants serious consideration.

The Dangerous Allure of “ABC” Trading

The “ABC” philosophy circulating among departing crypto investors—“Anything But Crypto”—carries genuine peril. When small-cap stocks dominate, it frequently marks the final frenzied moments before liquidity exhaustion at a bull market’s terminus. The Russell 2000’s constituents carry weak profitability and extreme sensitivity to interest rate surprises. The AI sector exhibits textbook bubble characteristics: Nvidia and Palantir trade at historically extreme valuations with profit growth increasingly questioned relative to valuations. Deutsche Bank analysts and Bridgewater founder Dalio have both identified the AI bubble as 2026’s primary market risk.

Moreover, the massive energy consumption underpinning AI infrastructure threatens to trigger a new inflationary wave that could force central banks into tighter monetary policy—immediately bursting overvalued asset bubbles.

The Crypto Bear Market as a Market Signal, Not Just Underperformance

The crypto market’s current struggle is less about underperformance and more about signaling. Bitcoin’s weakness amid geopolitical tension, liquidity withdrawal, and bubble-like valuations elsewhere represents a wake-up call for disciplined investors. The market is pricing something that optimistic sentiment and record-low cash levels haven’t yet priced: the possibility of sharper corrections and significantly altered macro conditions.

For long-term investors, this moment tests conviction. Rather than capitulating to the “ABC” narrative, crypto’s bear market backdrop presents precisely the environment where building positions makes strategic sense—not because crypto will immediately outperform, but because historical patterns suggest this oversold condition will ultimately resolve in Bitcoin’s favor. The true opportunity lies not in chasing currently hot assets, but in maintaining discipline when that discipline is most difficult.