Core Strategy

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

Crypto and Geopolitical Risk Premium

First and foremost, we acknowledge the human cost of these events and express deep sympathy for all those affected. That said, our role is to analyze crypto market implications, and we will continue to do so.

Rising geopolitical conflicts are almost always initially negative for crypto. There tends to be a knee-jerk risk-off move as investors shed assets furthest out on the risk curve. We saw this twice in 2024 following a limited Israeli/Iran conflict in April, and again after more extensive strikes in late October.

In both instances, crypto sold off in response to Iran’s initial aggression and rallied following Israel’s retaliatory strikes.

April Events

• April 13, 2024 – Iran launched approximately 300 drones and missiles (around 170 drones, over 30 cruise missiles, and more than 120 ballistic missiles) from Iran, Iraq, Lebanon, and Yemen toward Israel and the Golan Heights. The majority were intercepted by Israel, the U.S., the U.K., Jordan, and other allies
• April 19, 2024 – Israel responded with a strike targeting an air defense radar site protecting the Natanz nuclear facility. Satellite imagery confirmed damage to an S-300 radar system

As shown in the chart below, the crypto market adopted a risk-off posture following Iran’s initial strike, reflecting investor uncertainty. Once the retaliation was completed and the risk of broader escalation receded, crypto rallied. Prices later rolled over due to monetary policy uncertainty, but the geopolitical risk premium eased. We can infer this from the behavior of gold and crude, both of which peaked and then fell shortly after, suggesting that geopolitical concerns were subsiding.

October Events

• October 1, 2024 – Iran launched around 200 ballistic missiles in multiple waves at Israeli targets, including the Nevatim and Tel Nof airbases and a Mossad facility.
• October 26, 2024 – Israel responded with a wide-ranging aerial and missile campaign across Iran, Syria, and Iraq. Targets included missile factories, S-300 air defense systems, and the Parchin nuclear-related facility.

Again, crypto sold off on the initial strike and were unfazed after Israel’s response. While the election likely dominated most risk models at the time, it is reasonable to conclude that the geopolitical risk premium had already begun to recede ahead of the vote. This is once more observable through the behavior of gold and crude.

How to Proceed

If you’re new to crypto, you might ask: Why would crypto sell off in response to events that could lead to increased government spending and potential USD debasement? There are two key reasons:

1. As mentioned, there is typically an immediate risk-off move as investors evaluate the longer-term implications of a geopolitical shock
2. If the conflict leads to a sustained economic impact, it can create a more persistent bear case for crypto

Whether one should look for opportunistic entries or fade rallies depends on the lasting effects of the conflict. The key question is: Will this conflict fundamentally change the macro environment by altering fiscal or monetary conditions?

A clear example of a prolonged negative impact on crypto was the Russia–Ukraine war, which began in February 2022 and continues today. That conflict disrupted global supply chains, worsened an already fragile inflation backdrop, and likely extended the Fed’s rate hike cycle.

This time, the most impactful move Iran could make would be to disrupt the Strait of Hormuz, located to its south. According to the U.S. Energy Information Administration, an average of 20.9 million barrels per day passed through the Strait in 2023, representing about 20% of global petroleum liquids consumption. Some estimates suggest 30% of global LNG volumes also transit through this chokepoint.

If Iran were to disrupt this passageway, it could produce lasting inflationary effects. Crypto’s response would then depend on how the Fed reacts. At this point, we view the Fed as broadly neutral. In that context, higher inflation driven by supply shocks would likely send crypto lower.

We are therefore closely watching gold, crude, and the Polymarket prediction market below.

Adding SBET to Crypto Equities Basket

SharpLink Gaming, a marketing partner to sportsbooks and online casino gaming operators, announced a $425 million private placement on May 27^th to initiate an Ethereum treasury strategy. ConsenSys Software Inc. led the round, with participation from prominent crypto venture firms and infrastructure providers including ParaFi Capital, Electric Capital, Pantera Capital, Arrington Capital, Galaxy Digital, Ondo, White Star Capital, GSR, Hivemind Capital, Hypersphere, Primitive Ventures, and Republic Digital.

Following the announcement, SBET shares surged from $6.70 to as high as $124, likely due to a combination of speculative frenzy, low float, and limited borrow availability for shorting. This pattern mirrors other companies that have recently adopted crypto treasury strategies.

For the uninitiated, the playbook is simple: companies aim to capitalize on heightened equity volatility to issue expensive stock and accumulate crypto, effectively increasing their coin-per-share ratio. When executed well, this can result in accretive dilution. Of course, there is ETH price risk to consider, but companies with strong balance sheet management and the ability to tap both convertible debt and equity markets effectively may offer compelling ways to gain exposure to the underlying asset.

Notably, SharpLink is the first major company to dedicate its treasury strategy entirely to ETH.

After peaking on May 30^th, SBET’s share price gradually declined to the $30–$40 range, still significantly above the estimated net asset value (NAV), trading at a 5–7x premium at the time. However, after market close on June 12^th, SharpLink filed to register the PIPE shares and pre-funded warrants with the SEC, enabling resale by investors. This triggered a sharp selloff, sending the stock below $10.

As of market close on June 13^th, SBET is trading at $9.21, implying a ~$700 million market cap, or roughly a 1.6x premium to NAV.

It’s important to note that the registration of PIPE shares simply allows investors to sell but is not an indication of an intention to sell.

With SBET now trading at a premium to NAV comparable to corporate treasury leader MicroStrategy (~1.9x NAV), we believe it presents an attractive opportunity to build a position in a company offering ETH exposure through its balance sheet with the ability to expand its premium with proper execution.

We believe it offers intriguing upside at these prices and are therefore adding SBET to our basket of crypto-linked equities.