Replaying 2021! Bitcoin leads the surge in risk assets, and the US stock market fears a "replication of the big drop in 2022 next year."

As the price of Bitcoin approaches the $100,000 mark, its rising momentum has not only driven up the stock prices of cryptocurrency-related companies but has also sparked concerns in the market about a potential overheating of the stock market: Is it repeating the frenzy of 2021? Is it far from the significant drop in 2022?

The market frenzy of 2021 brought investors a brief but substantial profit, but it was followed by a brutal bear market, causing significant losses for many new investors.

Now, some sectors of the stock market appear to be exceptionally overvalued. For example, online used car retailer Carvana has seen its stock price rise by 430.71% year-to-date, and the valuation of the S&P 500 index has climbed above 22 times the expected earnings for the next 12 months for the first time since 2021.

George Cipolloni, a portfolio manager at Penn Mutual Asset Management, stated:

“What I worry about is that the market will go through another round of unsustainable craziness, and people will get hurt. While it’s hard to say whether the market frenzy has reached dangerous levels, it is certain that the enthusiasm and bubble level in the market have clearly increased compared to a month ago.”

On Friday, some Wall Street figures cited by MarketWatch indicated that investor optimism may be nearing “excessive” levels. Citigroup's Levkovich index, which measures stock market sentiment, has surged sharply in recent weeks, prompting the bank to include sentiment factors as one of the reasons for a “cautious outlook on the market's future direction.”

However, despite some current trading behaviors resembling those of 2021, the macroeconomic backdrop of that year differs significantly from the present.

In 2021, interest rates and bond yields were at historic lows, while currently, the yield on the 10-year U.S. Treasury is about 4.43%, well above the 1.5% seen in December 2021. Mohannad Aama, a portfolio manager at Beam Capital Management, stated that the current higher yields undoubtedly increase the risks in the market.

At the same time, both the stock market and Bitcoin have not “yielded” to the pressures of higher borrowing costs but have risen under the enthusiasm of the “Trump trade.” However, this has also made the prices of both assets overly perfect, meaning that if corporate earnings fail to meet investor expectations, or if President Trump fails to deliver on his promise to create a national Bitcoin reserve, both markets could face difficulties.

Last Friday, the U.S. stock market collectively closed higher, with the S&P 500 index, Nasdaq index, and Dow Jones index all achieving gains for the week, with the Dow even setting a new closing record. Aama remarked:

“The S&P 500 and Nasdaq indices reflect a lot of good news. If these good news do not materialize, it could be problematic.”