U.S. stocks are flashing signs of excess while the crypto market remains muted. Bank of America’s Global Equity Risk-Love indicator jumped to 1.4 — its highest level in 13 months — a reading that has only been exceeded about 7% of the time since 1987, according to The Kobeissi Letter.
The gap is clear: equities have rallied rapidly since April, helped by dovish economic signals and heavy ETF flows, but two of crypto’s largest coins have largely failed to follow. CoinGecko data shows Bitcoin up less than 1% and Ethereum down about 0.4% over the past seven days.
What the Risk-Love metric captures is a mix of positioning, implied volatility and technical momentum. A swift swing from panic to euphoria — which the metric recorded over the past four months — raises the prospect that a risk-off reversal could produce a sharp drawdown in equities that spills into crypto markets.
Market signals and investor behavior
Despite the elevated sentiment in institutional indicators, retail investors appear cautious. An American Association of Individual Investors sentiment survey found only 15.5% of respondents bullish, suggesting broader “euphoria” hasn’t taken hold among short-term or retail traders. Crypto’s own gauges mirror that hesitancy: the Fear and Greed Index currently skews toward fear, not greed.
Seasonality also favors caution. September has historically been less friendly for risk assets, and analysts point to an average return pattern that has kept traders defensive. Near-term calendar risks — notably U.S. jobs data on September 5 and the Fed calendar around mid-September — mean participants may hold positions until clearer policy direction arrives.
Why crypto traders should care
If investor positioning in equities proves stretched, a reversal could cascade into digital assets and deepen recent weakness in Bitcoin and other tokens. That makes it important for crypto traders to monitor cross-market flows, implied volatility, and macro data releases that drive central bank expectations.
Key takeaway: Elevated equity sentiment and muted crypto performance create a risk-off vulnerability. Traders seeking to limit downside can monitor the Risk-Love indicator, macro data releases, and the Fear and Greed Index for early signs of shifting risk appetite.
Source: Decrypt. Read the original coverage for full details.