Core Strategy

Crypto Equities Portfolio

Whale Games

Last week, shortly after BTC hit a new all-time high of $123k, we noted movement from a wallet created back in 2011. An OG whale was transferring ~$9.5B of BTC to Galaxy, presumably in a large OTC deal, with some BTC also making its way to exchanges for sale. This activity triggered a roughly 6% drawdown from the local peak.

Last night, on-chain sleuths reported that Galaxy had started moving the remaining BTC acquired in that OTC sale to exchanges for liquidation. This likely explains the weak overnight price action.

The good news is that there appears to be only about $2 billion of BTC left to be sold out of the original $9.4 billion. As a result, we suspect the market impact of these sales will be minimal after Friday.

Of course, this weighs on BTC from a trend-following perspective and could sideline some momentum-based capital in the short term. But it is worth considering that these sales may be unrelated to the current macro environment and instead driven by idiosyncratic factors. This is supported by BTC dominance being lower on the day. This is similar to what transpired during the last bout of Whale sales.

In fact, a short-term recovery in BTC similar to what we observed last time would not be surprising.

Additional Food for Thought: While the following thought exercise does not offer much near-term trading insight, it does carry long-term significance. For every seller, there is a buyer. This whale, who could be viewed as a “quasi-founder” of the protocol, sold their coins to new holders at a much higher cost basis. That reflects a maturing market, with the network’s aggregate cost basis continuing to rise. For long-term investors, this rotation of early holders into a new base of buyers, who are likely anchored at higher price levels, is ultimately a healthy development for the asset.

Leverage Building, But Not Overheating

Leverage is not inherently bad for asset prices. In fact, it often supports them. It only becomes dangerous when leverage is imbalanced (with bulls clearly outweighing bears) and the pace of leverage growth exceeds capital inflows into the spot market.

As we’ve discussed over the past couple of weeks, leverage has returned to the market, with funding rates periodically ticking higher. However, instances of overheating have been short-lived, with funding rates quickly resetting after entering frothy territory. The heatmap below provides context. There have been three clearly identifiable periods of elevated funding rates. In each case, conditions cooled within a day or two, with minimal impact on spot prices.

This lack of sustained high funding is also evident in the chart below. While there are signs of rising bullish leverage, the magnitude and duration of elevated funding are modest compared to what we saw post-election.

We also have not seen DeFi borrow rates become overly stretched. In the frothier parts of the cycle, stablecoin borrow rates typically rise above 10 percent, signaling that traders are borrowing to long altcoins or increase leverage on collateral. While we have seen intermittent upticks in Aave borrow rates for USDT and USDC, they remain well below the levels observed in Q4 2024.

Capital continues to flow into crypto markets. While BTC ETF inflows have slowed, ETH ETFs have picked up the slack, with over $3 billion in inflows over the past seven trading days.

Capital Inflows Remain Robust

Stablecoin issuance has also been strong, with more than $5 billion in net creations over the last seven calendar days.

While much of this capital may be used as collateral in leveraged trades, the combination of stablecoin inflows and relatively mild funding rates is encouraging. Together, ETF and stablecoin flows provide a constructive backdrop for prices. The pace of inflows over the past week is comparable to what we saw after the election.

Spot market volumes are rising as well, which points to growing interest and risk appetite. This does not incorporate the continued flows from digital asset treasury companies into majors. These have been noticeable in the order books, and with most of these companies still trading at a premium to NAV, the buying is likely to continue.

Liquidity Trends Still Positive

Liquidity remains a near-term support for crypto. Net liquidity, defined as the Fed’s balance sheet minus the Treasury General Account and the Reverse Repo Facility, has stabilized and recently ticked higher.

This is largely because the Treasury has delayed replenishing the TGA, which would otherwise pull reserves out of the banking system and tighten conditions. As a result, excess liquidity remains available to support risk assets like BTC.

The Reverse Repo Facility also continues to trend lower, which signals that money market funds are reallocating capital into higher-yielding assets. This dynamic helps support broader liquidity conditions.

This favorable window may begin to close soon. The July 30^th Quarterly Refunding Announcement will offer more details on the pace and structure of the TGA refill for Q3. Depending on the outcome, reserves may begin to be drawn down, but we will evaluate and respond in real time.

At the same time, the declining DXY is another supportive factor. A weaker dollar typically coincides with easier financial conditions globally and tends to support USD-denominated assets like BTC. Historically, periods of dollar weakness have either preceded or coincided with rallies in Bitcoin, particularly when net liquidity is also rising. The chart below shows 70-day changes in DXY and lagged BTC changes, and the relationship suggests further upside.

Next Week Will Be a Pivotal One

A significant amount of data and policy updates will hit the tape next week:

Key Events:

1. Tuesday – JOLTS
2. Wednesday – GDP, FOMC rate decision, QRA, and the President’s Working Group report (sources indicate it will be released to public on Wed)
3. Thursday – Core PCE, Personal Income and Spending
4. Friday – Unemployment, NFP, and ISM Manufacturing PMI

Key Questions / Thoughts Heading In:

1. While the FOMC decision will likely be a hold and Powell will continue with a “wait and see” message, we expect at least one dovish dissent (likely Waller). Will there be others?
2. On the QRA: how aggressively will Bessent continue pursuing an accommodative Treasury issuance profile? What is the outlook for the TGA refill through the rest of Q3 and into Q4?
3. Tariffs: Will all of the tariffs outlined in the letters from President Trump go into effect? What are the implications of the court proceedings on July 31^st related to earlier rulings that struck down some of the tariffs under the International Emergency Economic Powers Act?
4. The President’s Working Group report: Will we get any concrete plans for a Strategic Bitcoin Reserve?
5. Economic data: Recent releases, including the last jobs report, point to a resilient economy. We expect the upcoming data to reflect continued strength, despite tariff-driven uncertainty earlier in the year. We think so.

With such a stacked week, surprises are certainly possible, and we will react as needed. But our base case is:

1. Dovish dissent at the Fed alongside “wait and see” commentary from Powell
2. A Treasury that begins refilling the TGA in Q3, but does so with mostly short-dated issuance, which is the most favorable outcome for risk assets
3. Progress on trade with top partners and possible market speculation that deals will be restructured following the court proceedings
4. Constructive language from the President’s Working Group on the SBR, but nothing that immediately changes BTC’s trajectory in an extreme way, since any actualization will likely need to incorporate Congress
5. Economic data that confirms continued recovery and labor market strength

Altogether, this would set the stage for crypto to continue performing well into mid-August, at which point we will need to watch for potential headwinds such as declining liquidity, rising yields, and negative seasonality. Should the outcomes of the above catalysts diverge from expectations, we will certainly adjust our short-term views to align with our findings.