A new analysis points to a growing tension in the U.S. stock market: valuations are among the highest ever, while economic signals are showing signs of cooling. According to analysts, this combination can make the market vulnerable once profit expectations are scaled back. And that could have enormous consequences for the Bitcoin price.
When High Valuations Meet Rising Unemployment, Something Has to Give
This chart looks complicated, but the message is pretty simple. The black line up top….the 5 year CAPE smooths out the noise and shows you how expensive the market really is relative to earnings. Sitting near… pic.twitter.com/CscKCAbOSb
— EndGame Macro (@onechancefreedm) December 4, 2025
CAPE Ratio at a Historic High #
The 5-year CAPE ratio, a valuation metric that smooths out earnings fluctuations, is hovering around 32. This level was previously seen during the dot-com bubble, after the coronavirus pandemic, and at a few mid-century peaks. Those periods didn’t always end in a crash, but they often preceded years of lower-than-hoped-for returns. The reason: a lot of future expectation was already priced in.
In simpler terms: we are paying premiums for profit growth that has yet to materialize.
Equity Risk Premium Has Almost Vanished #
The risk premium on equities—the extra return over U.S. Treasury bonds—is historically low. The simplest measure, equity return minus the risk-free rate, is virtually flat. With rising unemployment and slowing economic momentum, this offers little protection.
High valuations can persist for a long time, but they become quickly vulnerable when the cycle turns.
Where Pressure Could Build #
In a weaker climate, companies often cut costs early. They stop hiring, limit hours, and revise profit forecasts. From a CAPE of 32, there is little margin to absorb disappointments.
Should the economy move toward a recession while long-term interest rates remain high—due to government issuance, inflation, or fiscal pressure—the worst possible combination emerges: falling profits against a high discount rate. This often leads to price declines, and sometimes abrupt ones.
Even if the Fed were to ease in such a situation, the effect is usually delayed. QE and rate cuts reach Wall Street quickly, but the real economy only months later. The market can continue to fall during that period even as policy is already loosening.
The Impact on Bitcoin #
For the Bitcoin price, this tension field represents two contrasting forces:
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Equity Risk → Pressure on Crypto When valuations are high and the macro economy weakens, investors often reduce risk. This can temporarily pull capital out of crypto, especially if volatility increases.
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Interest Rate and Liquidity Turning Point → Potentially Favorable Long-Term As the cycle turns and the U.S. central bank eases, liquidity increases. Historically, this has been positive for Bitcoin. But that stimulus comes with a delay, and markets can correct further first.
In short: in the short term, risk aversion could weaken Bitcoin, but in the medium term, an easing phase could provide fuel for a recovery.