You can disable it using one of two methods using the Terminal command line. The end result of both methods is the creation of two new sub folders within the main "/Library/Preferences" folder to contain a new custom .plist configuration file. It is best to just copy & paste each line so you don't accidentally mis-type something:
Single step option:
sudo defaults write /Library/Preferences/FeatureFlags/Domain/UIKit.plist redesigned_text_cursor -dict-add Enabled -bool NO
Two step option:
sudo mkdir -p /Library/Preferences/FeatureFlags/Domain
sudo /usr/libexec/PlistBuddy -c "Add 'redesigned_text_cursor:Enabled' bool false" /Library/Preferences/FeatureFlags/Domain/UIKit.plist
These commands will prompt you for your admin password. Nothing will appear on the screen as you type the password, so you will need to press the "Return" key to submit the password.
You need to reboot the computer for this change before you see any changes.
I copied these commands from this other forum post here (Mac fan sites have these instructions as well):
Single step option:
https://stackoverflow.com/a/77296786
Two step option (same thread, next highest rated post):
https://stackoverflow.com/a/77256214
FYI, according to some reports, this "fix" can some times have undesired side effects such as the text insertion cursor not appearing in some GUI apps. If this is a problem, then you can revert back to the macOS default behavior by using the following command (a modification of the Single step option):
sudo defaults write /Library/Preferences/FeatureFlags/Domain/UIKit.plist redesigned_text_cursor -dict-add Enabled -bool YES
If that command does not re-enable the Caps Lock indicator, then you can use the following command instead:
sudo defaults delete /Library/Preferences/FeatureFlags/Domain/UIKit.plist redesigned_text_cursor
I highly recommend everyone to provide Apple with product feedback so perhaps Apple will sit up & take notice that Apple needs to incorporate an easy to toggle setting in the System Settings and to ensure having the feature disabled doesn't have any negative effects in any apps like this "hack" does.
Feedback - macOS - Apple
[Edited by Moderator]