Last week, we wrote that the administration’s response to bond market volatility implied a critical shift in ongoing trade negotiations. While this does not eliminate the economic risks that remain, as investment and hiring decisions are effectively frozen, it does clarify two important points: (1) the administration appears more focused on shifting trade away from China rather than overhauling global trade entirely, and (2) it is aware of market volatility and seems unwilling to risk a deep recession or depression in exchange for trade wins.

With this in mind, and given a conservatively positioned market, improving liquidity conditions, and positive seasonality, we believed it was appropriate to increase exposure in our Core Strategy. We aimed to reduce our stablecoin allocation from 50 percent to 25 percent and increase our relative altcoin weighting while still waiting for either a sizeable retrace or a breakout in BTC before making those adjustments.

Then on Friday, we determined that select altcoins, particularly SOL, were positioned for meaningful upside if bullish price action continued. We viewed increasing our SOL exposure as offering an attractive risk-reward setup.

BTC has finally moved above the “magic line” that has served as formidable resistance over the past few months. As a result, we believe this is a good time to add more risk to our Core Strategy.

Below are several additional data points that support a compelling case for doing so.

Increasing Liquidity

Due to the drawdown in the Treasury General Account (TGA) and the tapering of QT, liquidity in the banking system is rising at the margin. We discussed this at the start of the year, but the unresolved debt ceiling has led to capital flowing out of the TGA (the Treasury’s bank account) and into private sector bank accounts. This dynamic increases what we call “Fed Net Liquidity,” a flow of funds from the public sector to the private sector.

This flow is generally, though not always, a net positive for asset prices. As shown in the chart below, changes in Fed Net Liquidity (FNL) have tracked BTC fairly closely over the past couple of years. Rising FNL is typically a bullish signal for BTC.

That said, the Treasury General Account will eventually need to be replenished, which would have the opposite effect on liquidity conditions. But that seems more like a Q3 issue.

Positive Seasonality

In just a few days, tax season will be behind us for both individuals and corporations. This likely plays a role in the choppier price action historically seen in March. While we aren’t suggesting that was necessarily the case this year, coming off what was likely a strong year for tax receipts, tax season certainly didn’t help the market over the past couple of months.

Seasonality charts show that April and May tend to exhibit stronger bullish trends compared to the back half of Q1.

50-Day / 200-Day Moving Average Crossover

Last week, BTC’s 50-day moving average fell below its 200-day moving average. Many refer to this pattern as a “death cross.” But historically, this has not been the ominous signal the name implies. In fact, it has often marked a near-term or long-term bottom for BTC. The only notable exception was in 2019, when bulls struggled to make money across all observed timeframes.

DXY Has Weakened Considerably

DXY weakness has been a source of concern due to the sudden capital outflows from US assets. These flows have led to a major spike in volatility, which has kept BTC from benefiting in the way one might expect from a falling dollar.

However, if volatility subsides (VIX to < 20) and we see progress on trade talks, the DXY could remain soft due to persistent changes in capital flows. That would be a constructive environment for crypto.

Since 2010, there have now been 4 instances in which the DXY has fallen more than 3.5% in 4 trading days:

• 8/23/2015
• 3/26/2020
• 11/15/2022
• 4/10/2025

The 12-month forward return for BTC for the first three dates above:

• 177%
• 713%
• 124%

I want to caveat the fact that the prior instances of dollar weakness were due to shifts in monetary policy vs. trade-related forces, but ultimately, this still reflects changes in supply and demand for USD.

Market Positioning Still Conservative/Bearish

In our view, one of the best indicators of market positioning is funding rates. Persistently positive rates signal traders are borrowing expensive capital to go long, while negative rates suggest the opposite.

Over the past couple of months, funding rates have frequently dipped into negative territory. Despite the bounce in price last week and the VIX falling from over 60 to around 30, traders still appear biased toward shorting rallies, as indicated by the negative funding rate for BTC post-market-close on Monday.

This is not necessarily a signal for a major short squeeze, nor a perfect contrarian indicator, but it is generally a positive sign when the market stops moving lower in the face of negative sentiment.

We also see this reflected in CME basis, which remains muted compared to levels seen throughout the bull market.

Moving beyond just crypto markets, fund managers are the most bearish they have been in a long time. In fact, Bank of America’s Fund Manager Survey published today registered the 5^th most bearish results on record.

Risks That Persist

We would be remiss not to acknowledge the risks that remain, particularly those stemming from trade war negotiations:

1. The economy has already experienced several months of capex and hiring freezes due to tariff-related uncertainty. The full extent of this damage remains unclear.
2. Tariffs on China are still extremely elevated, and no deal has been reached. This remains a drag on the macro backdrop. Meanwhile, the 10 percent tariffs on other countries could drive a one-off increase in the price of non-Chinese imports.

Additionally, although volumes are improving, we have yet to see a resurgence in USD flows into ETFs and stablecoins.

CME futures open interest also remains at pre-election levels, indicating an absence of leverage and institutional capital in the market. If these metrics fail to improve over the next few weeks, we will likely need to reassess our near-term outlook, regardless of where prices are.

It’s a Trader’s Market

Ultimately, headline-driven markets like this one are challenging. No matter how strong the quantitative signals are, we are still at the mercy of policy decisions and their consequences. That said, data can still help us pick our spots. This is a trader’s market. In this environment, staying flexible and ready to shift one’s view based on new developments can help to outperform.