Core Strategy

Given today’s developments, we believe it will be appropriate to increase exposure in our Core Strategy (total long position from 50% to 75% long and increasing our relative altcoin weighting). That said, given the explosive nature of today’s move and the firm resistance BTC is testing, we think it is prudent to wait for either a retrace or a confirmed breakout before executing.

Bond Market Puts the Brakes on Tariffs Ex-China

Last night, we noted that the trade war was accelerating and morphing into a broader capital war, as evidenced by China’s significant move to devalue the Yuan. We also highlighted the ongoing selloff in the long end of the yield curve, which has become a focal point as investors appear to be boycotting long-term Treasuries.

Combined with rising credit spreads and more than four rate cuts being priced into 2025 Fed Funds futures, these dynamics suggested early signs of stress in the credit market.

This led us to adopt a cautious stance. However, we also pointed out that a material breakdown in the credit market’s ability to function could eventually prompt a response from the Fed, which could be a bullish development for crypto.

Shortly after publishing our April 8th crypto comments, yields began spiking to levels not seen since the start of the ongoing trade war:

• The US 10Y surged to 4.5%, a 65 bps increase since April 4^th.
• The US 30Y hit 5.0%, a 69 bps jump over the same period.

While there’s still debate around the catalyst for the selloff, whether it was a basis trade unwind or foreign selling of USTs, it was clear that turmoil was brewing.

This was particularly unsettling given the broader market was pricing in recession elsewhere: equities were down, Fed Funds futures pointed to more cuts, and crude was trading below $60.

Markets are moving at a breakneck pace. Yesterday, after filming our crypto video discussing possible fractures in the bond market, it seems something indeed broke overnight.

Our expectation was that this would trigger Fed action. Instead, it prompted a response from the White House. Whether the administration made concessions on its own or foreign pressure played a role is up for debate. But something happened Tuesday night that led to a softening of the U.S. stance on tariffs. Midday today, the following policy updates were announced:

• Tariffs on China rose to 125% from 104%.
• Tariffs on all other countries are set at 10% for the next 90 days (reciprocal tariffs delayed).
• Tariffs on steel and aluminum remain at 25%.
• Tariffs on imported cars remain at 25%.
• Canada and Mexico still face 25% tariffs on goods not covered under USMCA.

The key shift was the 90-day delay in reciprocal tariff implementation for countries outside of China.

As we mentioned Monday, crypto’s rally following the fake 90-day headline demonstrated that any real concession or deal still carried significant upside optionality.

That thesis played out today, with crypto reacting strongly to the news. BTC rallied nearly 8% (similar to the magnitude of the rally on Monday).

Today’s developments were a positive step. Notable data points flipping incrementally bullish include:

• Strong spot volume.
• Compression in the Coinbase discount.
• Options skew shifting decisively in a bullish direction.

Given today’s developments, we believe it will be appropriate to increase exposure in our Core Strategy, raising our allocation from 50% to 75% long and increasing our relative altcoin weighting. That said, given the explosive nature of today’s move and the firm resistance BTC is testing, we think it is prudent to wait for either a retrace or a confirmed breakout before executing.

To be clear, risks still remain:

1. The economy has already endured several months of capex and hiring freezes due to tariff-related uncertainty. The full extent of this damage is still unclear.
2. Tariffs on China remain extremely high, and no deal has yet been reached. This remains a drag on the macro backdrop. Meanwhile, the 10% tariffs on other countries could cause a one-off price increase in non-Chinese imports.
3. From a quasi-technical standpoint, BTC is still below most major moving averages and contends with the “magic line” of resistance we’ve referenced recently (see chart).

Conceptually, we think it is useful to view this setup through an options lens. There is a massive “call option” on a rapid trade deal with China. But as time drags on, the value of that optionality decays and the risk of economic deterioration rises. I would suspect that in the coming days, the admin will want to find reasons to frame today’s developments in a positive light and thus will look to forge deals and/or make multilateral progress with trade partners ex-China.

To summarize, while we are not completely out of the woods, today’s developments tilt the scales in favor of crypto over the next 1 to 2 months. In addition to improving Fed liquidity and favorable seasonality, we believe now is a good time to start finding spots to increase crypto longs. To us, that means waiting for a breakout or a retrace to add.