Core Strategy

Most of the risks that prompted us to turn cautious in early February still persist, so we believe it’s right to remain patient. However, the near-term (2–4 weeks) setup is starting to look compelling for a tactical rally as sentiment is miserable, liquidity conditions are improving on the margin, a lot of risk has already been priced in, and we’ve seen serious capitulation and deleveraging.

All eyes will be on the White House Crypto Summit on Friday, the outcome of which will likely determine the next big move. If we had to pick, our base case is a “buy the rumor, sell the news” scenario, much like Sunday’s surprise.

However, there’s a chance we break that pattern—either via a positive surprise (e.g., BTC purchase via gold revaluation) or simply because everyone is expecting a post-summit selloff. If we do see a bullish continuation, leaning into that move will likely be appropriate.

Cleaning Things Up

Below are the changes we are making in our Core Strategy portfolio:

Remove RAY: This currently comprises a small allocation in our Core Strategy portfolio, but at this point it’s just taking up space. It’s unclear whether the pump.fun meta will return, and even if it does, pump.fun seems determined to siphon liquidity from Raydium by building out its own AMM. This doesn’t mean Raydium won’t remain a top DEX on Solana, but about half of its fees in recent quarters have come from memecoins. From both a fundamental and narrative perspective, Raydium is likely to lag.

Remove AI Names: These also comprise a small portion of the portfolio but are similarly taking up space. Flows into the AI agent ecosystem have fallen off a cliff since the market turned sour—possibly due to the AI trade losing steam in traditional markets at the same time, but also owing to the lack of observable usage of the underlying products. We’ll keep this space in mind if the AI meta returns.

Increase Allocation to SOL: Despite the lack of memecoin meta, SOL is about to leave $2B in unlocks behind, recently had CME futures approved, and seems next in line for an ETF after LTC and XRP. It’s sitting 50% below its ATH from just over a month ago. We believe it’s right to start buying here again—the risk/reward looks compelling.

Recap of Recent Crypto Market Views

We believe it’s worth recapping why we’ve been more risk-averse lately. We turned cautious and recommended raising some cash at the beginning of February, once it became clear that the Trump administration was escalating tensions with trade partners. The reasons for turning incrementally bearish were as follows:

• Trade War – After tariffs on Canada, Mexico, and China were announced, it became apparent that the administration was serious about realigning global trade and was willing to endure short-term pain to make it happen. The market’s reaction also showed that tariffs weren’t priced in as many had expected. While the long-term implications of balancing trade might be bullish for BTC, the path is likely to be bumpy, as tariffs increase the risk of stagflationary pricing (which crypto doesn’t like).
• Lack of a Dovish Fed – In Sept through Jan, robust economic data forced the Fed to pause rate cuts and scale back its dovish stance. Based on subsequent data, much of the Q4 strength might have been due to front-running tariffs, and as of early Feb, the Fed’s reaction function remained limited.
• Headline Risk – Regardless of your political views, most agree that Trump is unpredictable, and often uses social media to create leverage in negotiations. This unpredictability and use of social media creates an environment where he could post something market-moving at any time. Crypto, as a reflexive asset class that depends on trend-following flows, is especially vulnerable in such a skittish environment.
• Lack of Near-Term Catalyst – Although the medium- and long-term tailwinds for crypto are huge, government processes simply don’t move as quickly as crypto does, so there weren’t any imminent policy catalysts.
• Flows Slowing – ETF flows and spot volumes were waning in early February, which was concerning given the amount of bullish news circulating (e.g., the White House executive order, bullish agency appointments).
• Growth Scare (New) – We did not anticipate how quickly fears of an overheated economy would flip to fears of slowing growth. This wasn’t entirely separate from the trade war, but was also fueled by Trump’s and Bessent’s rhetoric on fiscal constraint and more progress on DOGE.

Signs of Capitulation

The good news is that data suggests a substantial level of capitulation has occurred over the past couple of weeks. Highlights include (charts to follow):

1. A massive spike in USD volume, meaning a lot of BTC exchanged hands in the $80k–$90k range—resetting cost bases for many traders.
2. The highest 5-day total for BTC ETF outflows since those ETFs launched in January of last year.
3. 7-day stablecoin outflows were the highest since April 2023.

Capitulation doesn’t guarantee an immediate price rebound, but it does reduce near-term downside risk.

Massive Deleveraging

We also witnessed major deleveraging across the derivatives complex:

1. BTC-denominated perpetual futures OI has returned to August 2024 levels.
2. USD-denominated CME futures OI is back to pre-election levels.

Again, a lack of leverage doesn’t necessarily precede large moves higher, but it does reduce the risk of cascading liquidations.

A Lot Has Been Priced In, But Risks Remain Present

We’ve digested a lot of bad news this week and have visited the low-$80k range multiple times over the past seven days. It is worth reviewing the risks that we highlighted above, to see if they still hold water:

1. Trade War – This risk has improved but persists. There are signs of potential delays in tariff implementation, perhaps leaving room for negotiations.
2. Lack of a Dovish Fed – This risk also remains present, as there has been a noticeable lack of dovish Fed speak. However, weaker growth data and a possibly soft jobs report on Friday could shift Fed expectations. Indeed, the fed funds futures market has moved to pricing in three cuts over the next several weeks (chart below).
3. Headline Risk – Tariff issues and retaliations remain unsettled, so this risk isn’t going away yet.
4. Lack of Near-Term Catalyst – The upcoming White House Crypto Summit could be a big catalyst if it promises government purchases larger than what the market currently expects.
5. Flows Slowing – Volumes are rebounding, but stablecoin inflows remain weak, and ETF inflows are still absent. However, the MSTR premium has risen in the last couple of days (chart below), suggesting Saylor may tap his ATM equity offering soon—potentially buoying the crypto market for a short while.
6. Growth Scare – Growth concerns eased slightly in the past few days. A solid (though inflationary) Services PMI print and rebounding yields suggest less concern around growth prospects. However, other data points such as Challenger Job Cuts and a revised GDP Now figure (chart below) suggest that the growth scare should continue. The jobs numbers will likely carry a lot of weight in determining any near-term shift in sentiment.

Fed Funds Futures Pricing in More Cuts

MSTR Premium to NAV Increase

GDPNow Revised Negative on Thursday

Liquidity Conditions Improving Globally

A less-discussed factor is the global liquidity decline that transpired over the course of Q4 into Q1. Central bank liquidity had been rolling over, and the DXY was stubbornly high. Over the past few days, however, the DXY dropped from 106 to 104, and both China and Germany introduced sizable fiscal stimulus. While U.S. liquidity is still most critical for crypto, this is a good sign on the margin and sets up well for when U.S. liquidity eventually increases (timing still TBD).

There is a silver lining for U.S. liquidity: we’re now two months past the debt ceiling being hit, so extraordinary measures may run out soon. This could lead to the Treasury General Account (TGA) being drawn down, boosting banking reserves and overall market liquidity. Absent major developments (like a pro-crypto election or a high-profile ETF launch), BTC tends to follow changes in Fed liquidity closely.

Things That Would Give Us More Confidence

Data that would increase our confidence in a near-term crypto rally includes:

• A Coinbase Premium – A premium for BTC on Coinbase is a strong indicator of “risk-on” sentiment, as it reflects robust U.S. demand. A negative or flat spread is rarely consistent with a “roaring” crypto market.
• A USD Flow Impulse – While capitulation reduces downside risk, seeing the 7-day moving average of ETF inflows and stablecoin creation move into positive territory would be reassuring.
• CME Activity Increase – A lack of CME OI reduces the risk of forced downside, but higher OI alongside rising basis would be a solid bullish signal.
• A Positive Outcome at the WH Crypto Summit – We discuss this more below, but the bar for a “strategic reserve” that meaningfully boosts flows is quite high. Clarity here could propel prices higher.
• Real Capitulation in Traditional Markets – If equites were to throw a proper tantrum and cause peak fear in equity markets, that would be a potential sign to bid with more conviction.

Coinbase Premium / Discount

Stablecoin & ETF Flows

Sunday Surprise

As noted, Trump is nothing if not unpredictable. On Sunday morning, he posted on Truth Social claiming that his January executive order directed the Presidential Working Group to move forward with a Crypto Strategic Reserve.

Originally, the White House EO on digital assets instructed the PWG to assess the potential for a digital asset stockpile. It was unclear whether the EO was an endorsement or simply a fact-finding request, and we didn’t know which assets might be included. It also seemed we’d have to wait 180 days for the PWG’s study to finish.

However, Trump’s announcement clarified that the administration does support a stockpile initiative, wanting it to include assets beyond BTC (specifically SOL, XRP, ADA, and ETH). Despite this, questions remain:

• How would they implement this stockpile—through the Treasury or via legislation in Congress?
• What’s the eligibility criterion for assets in the stockpile?
• How large will the stockpile be?
• What is the timeline for implementation?

We’ll likely learn more at the inaugural White House Crypto Summit on Friday, but there’s both upside and downside risk until these unknowns are clarified.

Scenario Planning

Our base case is that this will be a “buy the rumor, sell the news” event, given high expectations for the PWG’s findings. However, investors should be prepared to read and react. Some possible outcomes:

• If The Govt Just Holds Onto Seized Assets – This would be short-term bearish. While removing $18B in sell pressure from the market is positive, it’s largely priced in and doesn’t create new net flows. We would fade this announcement if it’s the sole proposal.
• Buy New BTC With Tariff Proceeds – This option has circulated in crypto circles, but it’s tricky to price in. We’re uncertain about the final state of tariffs, and Congress might not approve of a heavily indebted nation engaging in this type of transaction.
• Revalue Gold and Diversify Into BTC – This approach would mark the Treasury’s 261 million ounces of gold at fair value (around $2,900/oz. vs. the current $42.44/oz. book value) and then sell some gold to buy BTC. Depending upon the intended gold/BTC ratio, this would be quite bullish. The initiative would require congressional approval, but White House support would significantly increase its odds.

Summary

Most of the risks that prompted us to turn cautious in early February still persist, so we believe it’s right to remain patient. However, the near-term (2–4 weeks) setup is starting to look compelling for a tactical rally as sentiment is miserable, liquidity conditions are improving on the margin, a lot of risk has already been priced in, and we’ve seen serious capitulation and deleveraging.

All eyes will be on the White House Crypto Summit on Friday, the outcome of which will likely determine the next big move. If we had to pick, our base case is a “buy the rumor, sell the news” scenario, much like Sunday’s surprise.

However, there’s a chance we break that pattern—either via a positive surprise (e.g., BTC purchase via gold revaluation) or simply because everyone is expecting a post-summit selloff. If we do see a bullish continuation, leaning into that move will likely be appropriate.

Tickers in this report: BTC 0.27% , ETH 2.77% , SOL -1.16% , JTO -4.95% , BONK -2.54% , HNT -3.09% , AERO 4.62% , DOGE 4.05% , XRP -1.78% , USDC -0.01% , MSTR -6.07% , SMLR 2.49% , GDLC, BITW, COIN -0.78% , HOOD -3.52% , BRPHF, MARA 5.77% , RIOT 2.90% , WGMI 0.95% , CLSK 10.43% , WULF 4.76% , IREN 0.92% , CORZ 0.13% , BTDR 0.46% , BTBT 5.00% , HUT 0.59% , HIVE 5.82% , BITF 9.84% , CIFR 2.11%