Macro Environment: AI Bubbles, and Early-Cycle Momentum

💡 The AI Boom and the Real State of the Macro Environment

If you spend enough time on X (Twitter) or watch financial news, you’ve probably heard the same warning over and over: “we’re in an AI bubble.”

People are comparing today’s market to the dot-com mania of the late 1990s. The assumption is that once this bubble bursts, everything from the Nasdaq to Bitcoin $BTC.X ( ▼ 4.38% ) will crater.

The last two “biggest tail risk concerns” for fund managers were fears of a second wave of inflation and the risk of a trade war triggering a global recession.

Neither of those scenarios ever materialized.

Markets kept moving, economies adjusted, and the predicted crises simply didn’t happen.

The next point worth making is that, on a fundamental level, the AI boom is not some speculative illusion. It has surged by 33% in October, far surpassing all other major risk factors.

It’s tangible, measurable, and expanding at an extraordinary pace. The macro environment around AI is driven by real technological progress and genuine demand, not just hype.

As Jan van Eck, CEO of VanEck, put it, there’s “crazy compute demand and the variables are moving at unbelievable speed.”

That’s not the language of fantasy, it’s data-backed reality.

The amount of “tokens consumed” within the AI ecosystem, which represent units of compute power, has surged 38 times year-on-year.

That kind of exponential growth doesn’t happen in bubbles detached from fundamentals; it happens when a new technological backbone is being built right in front of us.

So are there bubble-like pockets in the macro environment?

Yes, especially in small-cap AI-adjacent names - nuclear startups, chip suppliers, and niche compute providers. But from a market-wide view, this doesn’t look like 1999.

It looks like 2013 with early fast growth, but still supported by real fundamentals

The difference between a hype cycle and a true economic shift is liquidity. And the macro environment today is flooded with liquidity, not from reckless speculation, but from structurally easier financial conditions and policy tailwinds.

That’s why this rally still looks healthy.

As Goldman Sachs puts it, “The AI investment boom is not too big.” AI spending today is still under 1% of global GDP, far below the 2–5% peaks of past technology booms. Translation: we’re not late-cycle; we’re still early.

In short, the macro environment is being powered by productivity-driven growth, not just market greed. And that’s exactly the type of setup where both stocks and crypto tend to thrive.

📊 Market Internals & Liquidity: The Pulse of the Macro Environment

Market Liquidity

There is a clear rise in Global M2 supply from around $102.5T in mid-2024 to nearly $115T by early 2026. This steady climb reflects a global shift toward liquidity expansion.

Historically, when M2 increases, risk assets like Bitcoin rally shortly.

This chart signals a favorable setup for crypto markets. Expanding M2 suggests looser monetary conditions, lower real yields, and renewed capital flow into speculative assets.

If global liquidity continues to rise through last few months of 2025, Bitcoin’s next leg up could align closely with this macro trend while any M2 slowdown could quickly pressure prices again.

The U.S. Dollar Index $DXY ( 0.0% ) measures the dollar’s strength against major currencies and reflects global liquidity conditions.

When DXY is high, it signals tight money and risk-off sentiment. But when it weakens, like now near the long-term support around 100, it often marks a shift toward easier liquidity. A weaker dollar means more dollar supply in the system, which typically drives capital into risk assets such as stocks, gold, and crypto.

Historically, every major Bitcoin bull run has followed a period of dollar weakness. A falling DXY often means cheaper global funding and capital flowing back into risk assets, pushing Bitcoin and other cryptocurrencies higher.

Financial condition

Chicago Fed National Financial Conditions Index (NFCI) measures how tight or loose U.S. financial conditions are. When the index is above zero, liquidity is tight, credit is harder to access, and risk assets usually fall. When it’s below zero, money is easier to borrow, financial stress is low, and liquidity flows into risk assets.

Historically, crypto performs best when this index stays below -0.55 for extended periods. Each time financial conditions loosen, risk appetite rises and capital seeks higher-yield assets. Bitcoin and other cryptocurrencies benefit directly from this liquidity wave, as investors move away from cash and bonds toward assets with higher potential returns.

In 2011–2013 and again in 2020–2021, periods of easy liquidity and low financial stress aligned with massive Bitcoin rallies. When the index rises (above zero), signaling tighter liquidity and credit stress, Bitcoin tends to consolidate or correct.

The current NFCI reading around –0.55 indicates that overall financial conditions remain loose, signaling ample liquidity and low market stress. If this trend continues, the macro environment may again favor Bitcoin and other crypto assets, mirroring previous bull cycles driven by abundant dollar liquidity and investor risk appetite.

🌏 Business Cycles and Positioning

We often talk about the business cycle and many other indicators, but today let’s take a step back and look at the bigger picture to see where we actually are in the current cycle.

Cyclical pattern of the U.S. ISM Manufacturing PMI, which has shown a clear rhythm roughly every 4 - 5 years. Each cycle begins when PMI recovers from contraction (below 50), signaling a shift from economic slowdown to renewed growth.

In the past two decades, we’ve seen this happen repeatedly: Cycle 1 (2009 - 2012) after the global financial crisis, Cycle 2 (2012 - 2016) during post-recovery expansion, Cycle 3 (2016 - 2020) fueled by easy credit and tech growth, and Cycle 4 (2020 - 2024) driven by pandemic stimulus and post-COVID reopening.

This chart extends the view by overlaying Bitcoin’s price with the U.S. ISM Manufacturing PMI, revealing how crypto performance has tracked major macro cycles.

Instead of repeating past examples, the focus here is: Bitcoin consistently rises when the economy transitions to expansion right as the PMI recovers above 50.

With the PMI now hovering near its cycle lows, the setup mirrors previous inflection points that preceded strong rallies. If the next recovery follows historical rhythm, we may be at the start of Cycle 5.

Positioning

Positioning data shows asset managers and leveraged funds remain heavily net long in S&P 500 futures, signaling strong bullish sentiment despite high valuations. This level of optimism often appears in the late stage of an expansion cycle, when liquidity is still ample but macro momentum begins to slow.

The divergence between positioning and tightening credit conditions could indicate overconfidence, leaving markets vulnerable to a policy or growth shock. In macro terms, sustained long positioning suggests investors are betting on a soft landing and lower rates.

If that expectation reverses, it could trigger a rapid risk-off rotation—impacting equities and spilling over to risk assets like crypto.

The Russell 2000 futures positioning shows a clear contrast to the S&P 500. While large-cap exposure remains heavily long, small-cap sentiment is far more fragile. Asset managers and leveraged funds turned slightly negative again after a brief recovery, reflecting caution toward domestic, rate-sensitive sectors.

This shift often occurs when investors expect slower credit growth or lingering inflation pressures, which are signs of a mid-to-late cycle environment rather than fresh expansion.

The divergence between the S&P 500 $SPX ( ▼ 1.17% ) and Russell 2000 $RUSSELL.X ( ▼ 1.65% ) positioning suggests that liquidity is concentrated at the top of the market, favoring mega-caps while smaller firms still face funding constraints. If the Fed pivots toward easing and real yields decline, small caps could lead the next rotation.

Until then, this cautious stance in Russell positioning highlights uneven confidence in U.S. growth and a more selective, liquidity-driven risk appetite—something also mirrored in crypto’s performance, where capital flows remain highly sensitive to macro liquidity shifts.

Unlike the more cautious stance seen in small caps, Nasdaq positioning reflects confidence in AI, cloud, and mega-cap earnings resilience, which remain central to the rally.

This positioning underscores how capital is crowding into high-quality growth assets as a defensive play within risk markets. It highlights a structural liquidity preference: investors view tech as the safest way to stay exposed to upside while avoiding cyclical volatility.

Similar to crypto, the Nasdaq’s strength reflects abundant liquidity and investor faith in long-term innovation themes, but it also depends heavily on continued macro stability.

In general, this concentration of liquidity in mega-caps and tech explains why crypto hasn’t seen a strong breakout yet. Capital is still flowing toward safer, high-liquidity assets, leaving speculative markets like crypto in a holding pattern. As a result, we’re seeing short-term corrections and rising uncertainty, reflecting investors’ hesitation to take on higher risk until macro signals turn more supportive.

Key takeaway

• AI boom is real, not a bubble: Growth in compute demand and token usage shows structural expansion, not speculation. This is a productivity-driven cycle backed by real data.

• Global liquidity is expanding: M2 rising from $102.5T to $115T supports risk assets. As liquidity grows, both equities and crypto tend to benefit from easier funding conditions.

• Dollar weakness favors crypto: DXY near 100 signals softer dollar conditions, historically a strong setup for Bitcoin as liquidity shifts into alternative assets.

• Financial conditions remain loose: NFCI at –0.55 suggests low stress and easy credit, an environment that has fueled previous Bitcoin bull runs.

• Economic cycles are aligning: The PMI bottom hints at the start of Cycle 5, marking a shift from slowdown to expansion, which is a phase both stocks and crypto typically outperform.

• Positioning reveals imbalance: Investors are heavily long S&P 500 and tech, while small caps lag. Liquidity remains concentrated in mega-caps, showing cautious optimism.

• Crypto reflects this dynamic: Capital is staying in safer assets, keeping Bitcoin in a sideways phase. A breakout likely needs clearer rate cuts or stronger macro confidence.