Core Strategy

On Wednesday, we received a couple of material data points. The first was the first negative real GDP print since 2022. This spurred an immediate selloff across most assets (interestingly, bonds included) as fears of a tariff-induced recession entered the fold.

However, the market’s reaction was brief. Around 10am, core PCE was released and came in line with forecasts. It showed some stickiness in housing and goods, but overall helped negate fears of stagflation. Personal income and spending figures were also released, slightly beating expectations.

Crypto rallied into the close, further buoyed by strong tech earnings (possibly leaked before the bell). While crypto is generally less sensitive to earnings than it is to rates, monetary, and fiscal policy, earnings do influence broader risk appetite and are worth noting.

What this tells me is that the market is giving the administration the benefit of the doubt on trade, at least in the absence of stagflation showing up in the hard data. Investors were unwilling to sit on their hands after the recessionary GDP print, but the PCE numbers helped calm nerves.

On the trade front, a tariff impasse still presents the greatest near-term risk to crypto, as it raises the probability of a broader risk-off move similar to what we saw just a few weeks ago.

Side note: We continue to believe BTC has the potential to decouple from broader risk assets. We saw early signs of that a couple of weeks ago, and on a risk/reward basis, we still see more asymmetry in BTC vs equities. However, given equities have recovered over the past week, it’s challenging to tell just how material that relative outperformance was. So, we remain attentive to broader risk dynamics until we see more definitive signs that BTC is truly decoupling.

In summary:

1. The market appears able to absorb a brief economic contraction, absent inflation
2. Today’s core PCE print was serviceable, and stems inflation concerns for the time being
3. Tech earnings so far look solid (Meta’s capex increase may help offset misses elsewhere)
4. Investors seem inclined to give the President the benefit of the doubt on trade

Pairing the points above with the bullish data points we’ve articulated over the past few days, we think it is appropriate to add additional risk to our Core Strategy. We are reducing overall stablecoin exposure and upping our relative altcoin allocation. Bitcoin likely meets some resistance as it approaches prior ATH, but it’s likely that in such an environment, alts will have a chance to succeed.

Below we review several additional variables that are pushing us to adopt a more bullish posture.

Flows Are Back, Though Volumes Still Muted

We are now seeing the first material signs of USD re-entry into the crypto ecosystem since late January. Stablecoin flows are trending higher, led by renewed growth in USDT. ETF flows for both BTC and ETH have turned positive as well, and CME basis for both assets continues to rise. Together, these signals suggest institutional interest is returning and that leveraged longs are beginning to rebuild.

Importantly, the Coinbase premium remains in steady positive territory even through volatile sessions. There was a slight dip during Wednesday’s session, but it rebounded promptly.

The one flow-related metric we would like to see more progress on is volume. Volumes are still relatively muted compared to the levels seen in Q4 or early Q1.

Options Market Suggests a Big Move Ahead

Options data also supports a constructive view. Put-call skew has flipped negative across tenors from one week through six months, implying traders are now paying a premium for calls over puts. Historically, this type of skew shift often precedes bullish price action.

In addition, the Bitcoin Volmex Implied Volatility Index (BVIV) remains below 50, a level that has historically preceded decisive 15% or greater moves in BTC. While one such move has already occurred since BVIV fell below 50 on April 18^th, implied volatility has not yet spiked, which may leave room for another sharp move in price (we lean towards the next big move being higher).

Liquidity Changes Still Favor Crypto in the Near Term

All else equal, liquidity conditions remain favorable for crypto in the near term. As we’ve discussed in prior notes, the Treasury drawing down the TGA and the Fed tapering QT have together driven a sizeable increase in Fed liquidity to start the year. Historically, this has shown a strong relationship with BTC, best observed through the lens of the 90-day rate of change. The chart below, in my view, suggests that BTC is now starting to play catch-up to that shift in liquidity.

Seasonality Still Positive

Despite the old adage, “sell in May and go away,” seasonality is still quite favorable. It isn’t until we get to mid-summer months that we need to be more attentive to seasonality-based risks.

In summary:

1. USD flows are returning
2. Options traders are turning bullish
3. Liquidity trends remain positive
4. Seasonality remains positive
5. Muted implied volatility suggests a sizeable move ahead

Thus, despite the recent rally, and the ongoing uncertainty around tariffs, we still view the near-term risk/reward as favorable for crypto.