Core Strategy

Crypto’s recent underperformance relative to equities, coupled with a sharp BTC-SPX correlation breakdown, is a data point worth watching. We’re not rushing to de-risk, but we are monitoring the setup closely. The trade war legal saga has injected more uncertainty into markets but is also likely to result in a less aggressive tariff regime. This is disinflationary in the near-term, may widen the deficit further, but could challenge the policy framework around the proposed “Big Beautiful Bill.” Meanwhile, liquidity remains a near-term tailwind, ETH continues to outperform, and corporate BTC treasury activity is expanding.

Note: Our equities baskets are not risk-managed/rebalanced in the same way that our Core Strategy is.

Crypto-EQ Underperformance: Correlation Turning Point?

Crypto assets have underperformed equities in recent sessions, reversing the typical high-beta behavior we expect from the asset class. This divergence is not yet a reason for full-blown risk-off positioning, but it’s an important data point.

The chart below shows the 30-day rolling correlation between Bitcoin and the S&P 500 overlaid with BTC price. Year-to-date, we’ve seen three clear correlation peaks followed by breakdowns:

• Late January to early February
• Mid-April
• Late May (ongoing)

In each case, the correlation breakdown marked an inflection point in relative performance, with BTC moving first. For example, BTC began lagging equities on February 4^th, just after tariffs were imposed on Canada and Mexico. Equities didn’t follow until around February 19^th.

In mid-April, BTC bottomed out and began to outperform ahead of equities.

Today, BTC appears to have reached a local peak (does not mean it is THE peak) on May 22^nd while equities continue to move higher, largely on the back of strong earnings, which are mostly irrelevant to Bitcoin’s pricing dynamics.

The Coinbase premium also briefly flipped into a discount on Thursday. While not definitive on its own, persistent discounts have historically coincided with moves lower.

Trade War Legal Drama Adds Uncertainty but Lowers Tariff Expectations

The trade war, which has dominated macro narratives since February, took a meaningful turn this week:

1. Wednesday: The U.S. Court of International Trade ruled that President Trump exceeded his authority under the International Emergency Economic Powers Act (IEEPA) by imposing broad-based tariffs without a qualifying national emergency. The ruling would seeks to remove most of the tariffs applied by the administration on Liberation Day.
2. Thursday: The U.S. Court of Appeals for the Federal Circuit granted an administrative stay, keeping tariffs in place temporarily while both sides prepare legal arguments due in early June.
3. The administration has warned it may seek emergency relief from the Supreme Court if a quick resolution is not reached.

Implications for crypto markets:

• Legal Uncertainty: The trade war, which previously looked like it was heading toward a binary July resolution, now appears more open-ended. The removal of a clear 90-day deadline reduces pressure on trade partners to reach a deal and raises the odds of prolonged negotiations. This has been reflected in a sharp drop in Polymarket odds of successful trade agreements being reached by July.
• Alternative Tariff Channels Remain: Even if courts ultimately strike down the current tariffs, the Trump administration has other tools, including Section 122 and Section 301 (retaliatory trade actions), that could be used to reimpose tariffs. These routes may be less aggressive but still pose escalation risks.
• Lower Effective Tariffs Likely: Whether due to judicial constraints or increased negotiating leverage among trade partners, the eventual outcome is likely a lower net tariff burden than what markets had previously priced in.
• Crypto Impact: A reduced tariff regime is modestly disinflationary in the near term (less of a one-time price hike) and could widen the fiscal deficit slightly (less incremental tariff revenue). This may also undercut momentum behind the “Big Beautiful Bill,” as tariff revenue was pitched as a funding mechanism for new tax cuts, which extends the duration of the TGA rundown (good for liquidity in the near-term). As noted, it also increases market uncertainty. Some prognosticators will claim that “tariffs don’t affect BTC.” While this is literally true, they do affect the broader risk-taking appetite, which could reduce flows into crypto.

Investor sentiment appears mixed. While the rulings introduce new uncertainty, they also diminish tail risk. Despite equities moving higher on Thursday, markets did react with clear signs of risk aversion: crypto traded lower and gold, the top performer during the last phase of the trade war, rallied sharply on Thursday.

Liquidity Support and Ethereum Leadership

Despite the short-term headwinds presented above, broader macro liquidity conditions remain favorable. Fed liquidity is still trending upward. The key hurdle ahead is the pending reauthorization of the debt ceiling. Once passed, Treasury will need to refill its General Account (TGA), which could briefly drain market liquidity, but that isn’t yet a pressing concern.

Ethereum continues to show leadership within crypto:

• CME ETH basis is climbing
• ETH ETFs are beginning to attract inflows
• ETHBTC is attempting to break out of its intermediate-term downtrend

ETH’s resilience amid BTC weakness is worth watching closely as a potential rotation signal within crypto.

Structural Tailwind: Rise in Corporate Treasury Participation

One underappreciated structural tailwind is the growth in corporate Bitcoin treasury participation. As of a few days ago, the aggregate market cap of publicly traded Bitcoin treasury companies stands at nearly 7% of Bitcoin’s total market cap, up significantly from the 1.5% peak in the previous cycle.

This isn’t a 1:1 NAV reflection as these equities often trade at a premium. That implies significant additional equity issuance capacity to buy more BTC. The result: net new demand for Bitcoin from corporate balance sheets, which could prove supportive for price in the ensuing months.

However, this also introduces a new risk. I suspect that many of these firms are not led by committed holders in the way Michael Saylor is. If BTC experiences a sharp drawdown, some of these companies could be forced to sell or hedge their positions, especially if their Bitcoin exposure starts to undermine their operating runway or balance sheet stability. While this is not an immediate concern, it creates a source of potential downside reflexivity that did not exist in earlier cycles. But again, this is a concern for another day.

Core Strategy

Crypto’s recent underperformance relative to equities, coupled with a sharp BTC-SPX correlation breakdown, is a data point worth watching. We’re not rushing to de-risk, but we are monitoring the setup closely. The trade war legal saga has injected more uncertainty into markets but is also likely to result in a less aggressive tariff regime. This is disinflationary in the near-term, may widen the deficit further, but could challenge the policy framework around the proposed “Big Beautiful Bill.” Meanwhile, liquidity remains a near-term tailwind, ETH continues to outperform, and corporate BTC treasury activity is expanding.