# Are we "mid-cycle" or "late-cycle?" _The data may surprise you_ August 27, 2025 • Michael Nadeau --- # Are we "mid-cycle" or "late-cycle?" ## The data may surprise you Michael Nadeau August 27, 2025 Hello readers, The consensus view is that we are “late cycle.” That AI is “toppy.” And that valuations need to revert to the mean. Are the bears right? Is today’s environment most analogous to March of 2000, right before the tech bubble burst? Or is it more like 1998? This week, we explore the setup using both onchain and offchain data. Topics covered: - [Business Cycle Data](#business-cycle-data) - [Onchain Data](#onchain-data)  - [Portfolio Management](#portfolio-management) ***Disclaimer:**** Views expressed are the author’s personal views and should not be relied upon as investment advice. * [](https://bit-digital.com/?utm_source=thedefireport.beehiiv.com&utm_medium=referral&utm_campaign=are-we-mid-cycle-or-late-cycle)The DeFi Report is powered by BIT Digital, the leading global platform for high-performance computing infrastructure and one of the largest ETH treasury companies. NASDAQ: BTBT Let’s go. # Business Cycle Data ##### Valuations Data: Yardeni Research Despite the herd ringing the bell for “the top,” PE ratios for small & mid-caps are currently at historical averages. Bearish sentiment appears to be mainly driven by the Mag-7 outliers. However, combined Q2 earnings are projected to increase 14.1% over the last year. This puts the combined Mag-7 PEG ratio (p/e to growth) at 2. For reference, the long-term S&P 500 PEG ratio typically ranges from 1.3 to 1.5. The valuation is certainly high, but can be justified by exceptional earnings and forthcoming rate cuts, in our opinion. Unlike the “tech bubble” in 2000, Mag-7 earnings are real ($2 trillion last year). Meanwhile, small and mid-cap stocks appear undervalued, especially considering the productivity gains from AI, and a potential decline in the equity risk premium if the Fed cuts rates twice this year. The bear case here would be a decline in earnings among the Mag-7, coinciding with rate cuts that lead to a recession. We’ll have more on tech sector capex spend later in the report. ##### Bull Markets Since 1966 Data: Yardeni Research We’re currently in the 9th bull market since 1966. When we put this one into perspective, it certainly doesn’t seem that extreme. It ranks #7 in terms of % gain, and #6 in terms of length. The “tech bubble” comp falls flat here. ##### Global Liquidity Data: Cross Border Capital Global liquidity increased $425b last week, reaching $183.5 trillion, with a 3-month annualized growth rate of 8.8%. The steady expansion continues. Remember, BTC historically has a 6-8 week lag in terms of price sensitivity to changes in global liquidity. We don’t see any headwinds here. ##### Bank Lending Data: FRED The % of banks tightening lending standards has been in decline since the beginning of ‘24. The end of the business cycle typically occurs when banks are *tightening* lending standards, rather than easing them. Data: FRED In terms of *actual* commercial and industrial loans, we’re currently at an annual growth rate of 5.6%. This is moderate growth, not extreme. Historically, the latter stages of a business cycle coincide with sustained *double-digit *growth rates in lending. The constraint appears to be on the demand side, possibly due to elevated rates. What else is holding back demand? ##### ISM Data: Macro Micro Manufacturers are still cautious. It’s almost as if we have two completely different economies playing out. Weakness in manufacturing. Strength in services & tech. If we see the ISM break above 50 in conjunction with lower rates, we would expect demand for loans to *increase*, further fueling the business cycle. For reference, manufacturing is 10-12% of GDP today. Important note: since 1950, we’ve *never *had a case where the ISM fell sharply into contraction (as it did in ‘22) before consolidating below 50 (contraction) for 30+ months without rebounding into expansion. If the cycle is over, the manufacturing sector slept through it. ##### Capex Investment Data: Financial Times Does this chart make you think that AI expansion is “late-stage?” We’re having trouble aligning with that view. ##### In Summary - Valuations may not be as extreme as the market consensus wants to believe. In fact, the equal-weight P/E of the S&P 500 is currently 16.9x — a moderate level that highlights how the Mag-7 is influencing investor psychology. - The current bull market (starting in Oct. ‘22) has not hit extreme levels relative to past bull markets since 1966. Comparisons to the “tech bubble” are misguided in our view. - Manufacturing surveys (as measured by the ISM) indicate caution and concern — rather than euphoria. - This is muting the appetite for bank lending. If the ISM flips into expansion as the Fed cuts rates, we would expect to see an increase in demand for loans and a *continuation* of the business cycle. - AI capex spending from big tech is relentless. $400b of investment is projected for next year (twice what we saw last year). This does not align with “late stage” sentiment in the market. - When you add it all up, we believe there is plenty of evidence to suggest we may be closer to “mid-cycle” than “late-cycle.” Let’s hop onchain and see what the crypto-native data is telling us. ## TDR Pro Upgrade to finish reading the report. [Upgrade to TDR Pro](https://thedefireport.beehiiv.com/upgrade) Already a paying subscriber? [Sign In](https://thedefireport.beehiiv.com/login). #### TDR Pro Members Receive: - • Macro + onchain data "cycle awareness" updates - • Full access to our portfolio positions - • Average entry price for each position - • % of the portfolio in each position (including cash) - • Weekly update on what we are buying/selling - • Clear thesis & supporting analysis for any portfolio changes