Core Strategy

There is a chance that MSTR flows spark a short-term bounce here, but assets further out on the risk curve continue to face headwinds from ongoing uncertainty surrounding trade and monetary policy. Although the current administration takes a pro-crypto stance, there appears to be no immediate catalyst to revive market enthusiasm. We still anticipate that crypto will outperform this year, but until we see further progress on trade/monetary policy and renewed inflows into crypto, it may be prudent to raise cash or trim altcoin positions.

Green Shoots

Amidst the recent uncertainty, there have arisen a number of positive developments that should present opportunity for crypto once we wade through the morass of Trade policy. Below are a few that we think are worth touching upon.

QT Ending

The meeting minutes from the latest FOMC meeting were released this week. While they didn’t reveal many surprises, we did receive confirmation that the Fed is moving closer to ending its quantitative tightening (QT) program, with a current target of mid-year. It’s worth noting, however, that there is some nervousness around volatility in bank reserves tied to changes in debt ceiling policy.

One potential scenario is a prolonged debt ceiling standoff, which would result in the Treasury General Account (TGA) being spent down. When the debt ceiling is ultimately resolved, the Treasury would need to rapidly issue short-dated Treasuries to replenish its coffers, causing a swift drop in bank reserves. To prevent this drain/volatility, the Fed could conceivably cease QT before a debt ceiling resolution is reached.

In any case, the fact that this is now being formally discussed is “liquidity-positive.”

Hammering the Front-End

In a Bloomberg TV interview on Thursday, U.S. Treasury Secretary Scott Bessent addressed the potential for “terming out” Treasury sales, emphasizing that any decision would be “path dependent.”

Before taking office, Bessent had criticized former Treasury Secretary Janet Yellen for increasing the share of short-term Treasury bills, arguing it suppressed longer-term yields and artificially boosted the economy ahead of an election (a view we share). However, since assuming his current role, he has maintained the Yellen-era debt issuance plan, and his comments on Thursday confirmed that he does not plan to make any radical changes.

When asked about this on Thursday, Bessent noted, “As the market starts to realize what we’re doing, and if inflation starts to drop, then we will see — so it’s going to be path dependent,” he said of stepping up longer-term debt sales. “That’s the eventual goal, but I’m not going to signal it now.”

This puts a key market risk to bed as it pertains to long-term yields. Based on his prior comments, many believed that Bessent would be adamant about normalizing the average maturity of treasury issuances and that this would result in supply pressures on the long end of the curve. However, he has now stated that this is not his intention and that despite his criticisms of Yellen, he will not deviate from her strategy. This is, of course, positive for liquidity conditions since, on the margin, this reduces upward pressure on yields.

Gold Still Soaring

Analog gold continues to demonstrate outsized strength in this environment of heightened uncertainty.

As the price of gold nears the $3,000 mark for the first time, evidence suggests that central banks remain the marginal buyer—continuing a trend seen over the past couple of years.

Recall that the historical relationship between real yields and gold (over longer timeframes) began to break down in 2022, spurred by rising fiscal profligacy and the emergence of multipolar geopolitical dynamics. In our view, that breakdown marked the start of a global shift toward increasing gold’s weighting in central bank reserves.

This shift continues today, supported by a straightforward rationale: Despite the best efforts of DOGE, deficits are likely to continue. In addition to that, central banks now anticipate a more balanced trade environment and, consequently, more diversified reserves and a relatively weaker dollar.

We have discussed this at length recently, but it remains a firm goal of the current administration to balance trade through tariffs and onshore manufacturing. This will ultimately require a weaker dollar and lead to a greater level of multipolarity in global trade. This is good news for non-sovereign monetary debasement hedges. Gold is already benefiting from real-time flows, but this also reinforces our belief that Bitcoin’s current bull market likely has more room to run.

MSTR Reloading

We saw a modest recovery in crypto today following the pricing of Strategy’s (MSTR) latest convertible note. The company plans to issue $2 billion in new 0% convertible notes (with an initial conversion price of $433 and an option to upsize the offering to $2.3 billion). Bitcoin’s outperformance—despite a weakening equity market—may be due to traders front-running these anticipated inflows.

There has also been a noticeable uptick in the Coinbase premium today, though much of the price action is being driven by perps. This is evidenced by the rise in BTC-denominated open interest compared to last Friday when Bitcoin was trading at the same price.

MSTR’s return to the order books certainly increases the odds of revisiting the upper bound of Bitcoin’s range dating back to mid-December. However, we’ll need to see a stronger spot bid for a meaningful breakout. Notably, USD spot volumes for BTC have dipped to levels last seen when Bitcoin was 30–40% lower.

Options activity is similarly subdued; implied volatilities remain depressed. The Bitcoin Volmex Implied Volatility Index, for instance, is at levels not observed since last summer. Overall, the market appears characterized by both uncertainty and a certain degree of apathy.

SOL Unlocks

Last Friday, Argentine President Javier Milei became the latest national leader to endorse a memecoin on social media. Unlike the Trump coin launch, however, this one did not go smoothly. Many investors incurred losses, and details are still emerging about the allegedly fraudulent team behind the launch. It’s likely there will be repercussions, which is a good thing.

SOL saw a notable drawdown following this episode. While many attributed SOL’s weakness to the memecoin fiasco, we don’t view that as the primary driver. Instead, two main factors have been pressuring Solana since late January (with the decline accelerating in early February):

1. Broader macro uncertainty – which we’ve discussed at length recently.
2. Upcoming Solana unlocks – approximately $2 billion worth of SOL (at current prices) is set to be released into the market in March.

We flagged these potential Q1 headwinds back in January but also noted that once the volatility subsides, it could present a significant opportunity. We remain of that view.

It’s important to note that much of the forthcoming SOL unlock is already hedged. The bulk of these tokens were acquired at a discount from the FTX estate by institutional buyers, many of whom have taken out short positions as hedges. This is evident in the funding rates (charts below):

• Bitcoin funding rates: Generally positive
• Ethereum funding rates: Mixed, but recently trending positive
• Solana funding rates: Significantly negative, reflecting robust short-interest

This disparity implies a substantial number of investors are shorting SOL to offset their long positions.

What This Means for Price Action

Over the next few weeks, we’ll likely see:

• Significant spot selling as unlocked SOL hits the order books – many investors are well in the money with entries around $60–$100.
• Short covering should help absorb some of the selling pressure.

While we could see heightened volatility, this should present a great buying opportunity.

Tickers in this report: BTC 0.51% , ETH -0.26% , SOL 1.74% , JTO 4.17% , RAY, BONK 2.04% , HNT 4.87% , AERO 2.28% , DOGE -4.01% , XRP 0.35% , VIRTUAL, AI N/A% 16Z, USDC 0.00% , MSTR -0.55% , SMLR -0.20% , GDLC, BITW, COIN -1.06% , HOOD 3.05% , BRPHF, MARA -3.42% , RIOT -1.35% , WGMI -2.54% , CLSK -1.82% , WULF -3.57% , IREN -2.33% , CORZ 0.28% , BTDR -8.11% , BTBT -1.27% , HUT -0.82% , HIVE -0.55% , BITF -2.77% , CIFR -3.08%