Author:Investing Beanstock
Translation:Deep Tide TechFlow
Deep Tide's Guide: AI stocks are soaring, but this trader is actually selling tech stocks and turning to bottom-fish Bitcoin. He used Howard Marks's cycle theory to examine the current market point by point and found that AI already meets almost all the characteristics of a "bubble top." For investors, this article provides a calm framework for cycle positioning, helping you judge whether it's time to be greedy or fearful now.
The stock market is experiencing an AI-driven, frenzied bull market, which should come as a surprise to no one.
Not being positioned feels downright stupid—because capital expenditure (CAPEX) will only continue to rise, and the forward valuations of all these stocks will only become crazier.
I won't comment on specific stocks or indices; banks and financial media worldwide are already providing blanket coverage. I'm more interested in figuring out—or at least trying to decipher—what stage of the market we're in. Not just in cryptocurrency, but across the entire financial markets.
To do this, I drew heavy inspiration from one of my favorite books: Howard Marks's *Mastering the Market Cycle*.
Most people understand cycles as a series of events. Most also understand that these events typically follow each other in a regular sequence: an upswing is followed by a downswing, and then eventually a new upswing. But to fully understand cycles, this isn't enough. Events in a cycle shouldn't just be seen as one following another; more importantly, each event *causes* the next to happen.
The straight line = the midpoint. The market's pendulum is the wavy line oscillating around the midpoint. Together they form the market cycle, driven by various market forces that cause it to deviate from the midpoint from time to time.
The movement of cyclical phenomena can be easily recognized in several stages:
a: Recovery from an overly depressed low extreme or "trough" towards the midpoint.
b: Continuing past the midpoint to swing towards the high extreme or "peak."
c: Reaching the peak.
d: Correcting downward from the peak back to the midpoint or mean.
e: Continuing the downward movement past the midpoint towards a new low.
f: Reaching the trough.
g: Recovering from the trough back to the midpoint.
h: The cycle repeats.
So Where Are We Now?
Is this a bubble? I think it's quite evident at this point that AI indeed *is* a bubble. According to Marks, a bubble is signaled when the sentiment that "price doesn't matter" is strong.
In a bubble, investors often conclude that you can make money by borrowing (using leverage) to buy the frenzied asset. No matter what your borrowing rate or funding fee is, the asset will surely appreciate faster than that.
"No price is too high" is the ultimate ingredient of a bubble, a fairly obvious signal that the market has gone too far.
There are actually conflicting schools of thought, believing the market can stay far above its intrinsic value and still reward multiples due to the frenzy.
What to Do?
Since we can't be sure when the bubble will burst, in my view, we have two clear approaches to portfolio allocation.
Dollar-Cost Averaging (I mean real DCA, no timing, you just buy in boring, mechanical dribs and drabs. The more batches you split into, the smoother your final cost basis, that's the whole point.)
Heavy cash allocation, but still allowing yourself to participate in the market through tactical/satellite positions, like active trading.
I personally prefer the second method. But that's because I actively monitor the markets day in and day out; I rely on my own market experience and intuition to navigate all this.
DCA isn't a bad method either. But it does require one to truly extend their time horizon. Not 1 or 3 years, but at least 5 years to really see results. Most people DCA for a few weeks, or try to DCA while also timing, and it backfires. If you plan to DCA into a particular investment, make sure you fully understand that business/industry, and then just stick to it in a super boring, repetitive way and go on with your life.
In my 2025 review and reflection post, I mentioned allocating 25% of my portfolio to passive ETFs, including QQQ, SOXQ, XAR, URA, and UFO. I think a large part of the gains came from QQQ and SOXQ, but I sold all of it in May because I believe the market had swung far past the midpoint.
I also said I was overall bearish on crypto until early 2026 (which turned out right), I managed to keep a lot of cash, and am now patiently deploying a portion into BTC. The target accumulation range is $50k–$60k, so I've already started allocating as of writing this.
"Crypto Is Dead, Pivot to AI"
Honestly, my only regret is not allocating more to speculative private market exposure in Anthropic and xAI. I think frontier models still offer the purest AI exposure, compared to public market "picks and shovels" types, like the GPU/semiconductor/storage narrative. Since those are already consensus, I don't think chasing them now offers asymmetric upside. That ship sailed a long time ago. Stocks like MU are up almost 10x in a year, and stocks like SNDK basically move like memecoins. Upside might still be there, but downside risk looks worse.
But the CAPEX! Yes, this might translate into real incremental value in the future, but it's still speculative. Overly speculative, excess money all funneling into the same thing, I've seen this movie before.
Is it disappointing to miss a big chunk of the AI bull run? Sure, it stings a bit. But I still have exposure, and it's doubled. I really don't think it's responsible to tell someone AI stocks are truly worth buying at today's valuations, unless they *really* know what they're doing and are in it for the long term (most aren't, they're here for quick money).
Market Sanity Checklist
Now, let's go back to how Marks judges if we are near/approaching a market top:
The economy is growing; economic reports are positive.
Corporate profits are rising and beating expectations.
The media only reports good news.
The securities markets are strong.
Investors are becoming increasingly confident and optimistic.
Risk is perceived as scarce and mild.
Investors believe taking risks is the necessary path to profits.
Greed drives behavior.
Demand for investment opportunities exceeds supply.
Asset prices exceed intrinsic value.
Capital markets are wide open; raising money or rolling over debt is easy.
Defaults are rare.
Skepticism is low, confidence is high, meaning risky trades can be made.
No one can imagine things going wrong. No favorable development seems impossible.
Everyone assumes things will get better forever.
Investors ignore the possibility of loss, only worry about missing out.
No one can think of a reason to sell, and no one is forced to sell.
There are more buyers than sellers.
If the market dips, investors are happy to buy.
Prices reach new highs.
The media celebrates this exciting event.
Investors become euphoric and carefree.
Equity holders marvel at their own cleverness; perhaps they'll buy more.
Those who stayed on the sidelines feel regret; therefore, they capitulate and buy.
^ This means:
Future returns are low (or negative).
Risk is high.
Investors should forget about missed opportunities, only worry about losing money.
This is a time for caution!
So, how many of these do you think the current stock market is exhibiting?
On the flip side of the "market top" checklist, the opposite scenario can also manifest:
The economy slows; reports are negative.
Corporate profits are flat or falling, missing expectations.
The media only reports bad news.
The market is weak.
Investors become worried and despondent.
Risk is perceived as everywhere.
Investors believe taking risks is just a way to lose money.
Fear dominates investor psychology.
Demand for securities is less than supply.
Asset prices are below intrinsic value.
Capital markets are closed; it's hard to issue securities or refinance debt.
Defaults surge.
Skepticism is high, confidence is low, meaning only safe trades can be made, or none at all.
No one thinks improvement is possible. No outcome seems too negative to happen.
Everyone assumes things will get worse forever.
Investors ignore the possibility of missing opportunities, only worry about losing money.
No one can think of a reason to buy.
There are more sellers than buyers.
"Don't try to catch a falling knife" replaces "buy the dip."
Prices reach new lows.
The media focuses on this depressing trend.
Investors become despondent and panicked.
Equity holders feel stupid and disillusioned. They realize they don't really understand the reasons behind their investments.
Those who didn't buy (or who sold) feel vindicated and are praised for their cleverness.
Those who held capitulate and sell at depressed prices, furthering the downward spiral.
^ This means:
Implied future returns are sky-high.
Risk is low.
Investors should forget about the risk of losing money, only worry about missing opportunities.
This is a time to be aggressive!
Based on the checklist above, I do think BTC is exhibiting many of these (especially in the Saylor/MSTR situation). So I do feel BTC presents a more attractive investment prospect compared to today's high-flying AI stocks.
However, note that the above progressions are simplified, they may not even appear in the same order, nor necessarily appear in every market cycle, but these behaviors are real, they are indeed elements that rhyme in markets over decades.
The AI revolution has clearly benefited tech stocks, especially semiconductors over 1/3/5 year periods.
But investing is never done by looking in the rearview mirror (unfortunately, most people do and take reference from the past), advantage emerges where people ignore/dismiss it. We need to look at "what happens 1 to 10 years from now," not what today's environment is.
Looking at the chart above, saying you're a crypto investor and you should have invested in stocks would look silly.
Based on the above chart, if you chose stocks, statistically speaking, the likelihood of future underperformance is high.
Also, reading this in 2026 might sound like a joke now, but based on past lessons from cycles and an understanding of forward return/valuation fundamentals, I do think BTC will outperform stocks over the next few years.
The Most Dislocated Macro Environment Ever
We are also in one of the most dislocated, irrational market environments ever.
Under new Fed Chair Wash, interest rates are currently at 3.5–3.75%, and he's also publicly struck a hawkish tone. But rates aren't compressing; stocks instead keep rising, all because AI will cure cancer and everyone will make infinite money forever, right?
The Shiller CAPE ratio for stocks has broken above 40 for the first time, the first time since the peak of the dot-com bubble era. US stock market capitalization is now near 2x its GDP, valuations are higher than during the 2000 bubble.
Multiple expansions during a tightening cycle, this is textbook definition of dislocation.
This dislocation is primarily driven by a three-engine narrative/liquidity machine.
AI CAPEX supercycle: Large hyperscale cloud providers spending up to $725 billion in 2026, nearing $1 trillion, now accounting for over 30% of the entire S&P 500.
Late-cycle fiscal stimulus: Lower corporate and personal taxes/tariff rebates boosting nominal earnings, even as the Fed tightens.
Passive index fund flows: Index funds mechanically funnel every 401(k) dollar into the largest market cap companies, regardless of price. Boomers are now forced to buy these hyperscale cloud provider stocks at all-time highs, and they continue.
Risk Appetite Is Selective
Today capital is rushing into AI/semiconductors, while everything else including Bitcoin (last cycle's darling) is barely growing or bleeding. This is not a universally greedy market, but one funneling all capital into a single narrative (AI and its related verticals).
In 2025, AI-related stocks accounted for roughly 80% of the entire US stock market gains. Behind these all-time highs, market breadth is extremely narrow, most stocks aren't even contributing to the rally (unless you're AI-related).
Cracks Are Forming
The entire edifice assumes AI CAPEX can be met with real demand, and that energy-driven inflationary shocks will subside/not matter. Core PCE rose from 3% to 3.3%, oil prices surged from $57 to $113 during the Iran war then fell to $76, this is exactly why rate cuts were ruled out.
Cracks have already shown.
In the last full week of June, South Korea's KOSPI halted trading twice, Samsung and SK Hynix fell 12% in a single day, a warning of seller count versus remaining buyers.
Dalio also said his bubble gauge is near 1929 and 2000 levels, Buffett... still holds a record $381 billion in cash. Prices have become dependent on narrative, positioning, and leverage, there really isn't much margin of safety left.
My Personal Plan
Considering all of the above, here's how I, as a capital allocator, think about the whole picture.
Please note this is highly tailored to my own life situation, investment goals, and personality. Please do your own research, none of this constitutes financial advice.
I currently split my capital into 3 distinct buckets and manage accordingly based on a specific bucket.
Trading capital (highest risk, highest volatility, highest variance)
Long-term accumulation capital (buy-and-hold type I don't intend to sell)
Illiquid capital (private equity – SPVs, alternative investments)
How to allocate capital to which bucket is highly dependent on market environment and liquidity.
Right now, I keep most cash for Bucket 2. I've drastically reduced allocation to Bucket 1 due to deteriorating market edge. In crypto, I currently only deem BTC, HYPE, and LIT worth holding. Looking at stocks is playing musical chairs. Given current valuations, long-term allocation to stocks also doesn't make sense.
For Bucket 3, the amount is mostly fixed, about 20% of my net worth. Given its illiquidity and years needed to realize full returns, this bucket remains largely unchanged for the foreseeable future.
As of writing, I'm mostly cash (>80%), with allocation weights across the 3 buckets at 10%, 70%, 20% respectively.
Under Bucket 2, I've made 4 buys of spot BTC so far, average price around $59k. I'm also interested in certain ETFs, which I'll disclose when I decide on a long-term allocation.
In summary, nothing too fancy. More like fishing, waiting for that big fish. I don't mind catching a few small ones before the big one comes, but the point is to keep fishing, stay focused, and not give up.
Perpetual DEX Airdrop Farming Still an Edge
Although my trading decreased in June, I think one massively undervalued edge in crypto is perpetual DEX farming, especially Variational.
Though primarily driven by airdrop incentives, it's still ranked top 3 among perpetual DEXs, excluding the clear market leader Hyperliquid.
Variational is still in private beta, meaning you need an invite to use. What's special? It's an RFQ-based perpetual DEX, theoretically meaning they can list all sorts of pairs (even the most obscure) and still have deep liquidity, unlike order books that need crazy bootstrapping.
I mainly use it to trade commodities like crude oil, gold, silver, copper, and some other pairs. Focusing on open interest and holding long-term gets the most efficient points.
Referrals get a 15% points boost, my code automatically grants you SILVER tier for 90 days upon sign-up.
Other platforms I'm still farming with significant point allocation are:
The TGE target for all mentioned perpetual DEXs is Q3 2026.
I think the fear around STRC is overdone. But this financial engineering does alter investor behavior around it. Unwillingness to allocate until Saylor finishes selling $1B of BTC is now a key "bottom signal."
At $58k BTC price, I think valuations are reasonable. It's even below the 200-day moving average now.
This means H2 2026 could be a significant period for long-term accumulators. I do think there will be one last capitulation and heavy forced selling (including Saylor), likely coinciding with stocks starting to weaken.
While this isn't a pure BTC bullish post, I think among all assets that exist today, BTC offers one of the widest margins of safety, even if the ultimate low is about 15–20% down from here.
Think about it, in a long-term stagflation environment, scarce assets perform best. It was gold in the past, an asset outside the monetary system that existed for millennia.
I think ten years from now, accumulating BTC today will be seen as one of the most rewarding moments in a long time.
While stocks will indeed rise over time in the future, at this moment, I can't justify buying at such high valuations and am happy to watch from the sidelines until it comes back to earth.
What do you think? How are you thinking about capital allocation now?
