Core Strategy

Crypto Equities Portfolio

See commentary on the rebalance at the end of this note.

Tactical Setup Looks Constructive

Sometimes, a simple calendar turn is all an asset class needs to fall back into favor with investors. In the weeks leading into year-end (following BTC’s rejection at ~$94k), I laid out the reasons it made sense to detach from crypto markets. We were facing tax-loss selling, fund redemptions, and a general sense of investor apathy. That said, on 12/29 I noted that the turn of the calendar could create an opportunity for a tactical rally, as institutional flows reentered an increasingly illiquid market.

Given crypto’s lackluster performance, I wanted to see the flows picture improve and relative performance versus other risk assets stabilize before getting out over my skis. Over the past few days, the market has shown enough strength to suggest that the risk-reward for a tactical rally (~2-4 weeks) is now attractive.

Before going any further, I want to address what may feel like a contradiction to readers just tuning into my work. “He’s bullish now? I thought he was bearish.” As was the case throughout 2025, I think this is likely to remain a trader’s market. I continue to anticipate another leg lower in the first half of the year, but rallies during corrective phases can be both violent and highly profitable on the long side.

To summarize my current base case across different time horizons:

1. The odds of an early-year bounce extending into mid-to-late January are favorable
2. We could see sell-side supply re-enter the market as BTC approaches its 200-day moving average (currently ~$106k)
3. Additional downside volatility remains likely in the first half of the year
4. A more durable bottom and recovery are likely in the second half

Liquidity Backdrop Improving

As detailed in my outlook, I view liquidity trends as broadly supportive for most of the year. This is not a major concern from a structural perspective. Fiscal and monetary dynamics should remain constructive. Fiscal deficits are likely to widen as tax breaks deliver a cash windfall in Q2. At the same time, we should see modest balance sheet expansion alongside lower short-term interest rates, as inflation expectations remain anchored and a more dovish Fed Chair takes the helm.

That said, it is still worth examining whether liquidity conditions are supportive of a rally right now. Based on the charts below, I believe they are.

Base liquidity, as measured by Fed net liquidity, is trending higher, driven by balance sheet expansion and a drawdown in the Treasury General Account.

In addition, the 90-day rate of change in the DXY continues to roll over, a dynamic that has historically preceded improvements in BTC’s rate of change.

Finally, credit spreads are tightening again on a year-over-year basis, and BTC appears to be responding to this tailwind after a prolonged lag.

It is worth noting that high-yield spreads remain near historic lows. While this likely limits the magnitude of further tightening, I do not think the lack of additional room in spreads is enough, in the near term, to prevent continuation of the current rally.

Flows Returning as the Spot Market Leads This Bounce

We have already seen evidence of flows returning to crypto after just two TradFi trading days in the new calendar year (note: I am writing this before market close on Tuesday). Monday and Friday combined saw nearly $1.2 billion in inflows into BTC ETFs and roughly $340 million into ETH ETFs, a strong signal of renewed institutional participation. I suspect these flows reflect a combination of global portfolio rebalancing and fresh capital allocating to BTC and ETH as longer-term positions.

Further confirmation comes from the Coinbase–Binance spread, which continues to trend higher. Both BTC and ETH traded at a premium on Coinbase relative to Binance on Friday and again on Monday. As shown below, the 7-day moving average of the Coinbase–Binance spread is moving back toward positive territory, a dynamic that has historically coincided with the return of US spot demand.

Funding rates provided additional confirmation that this move has been spot-led, which is a much healthier setup than a derivatives-driven bounce. Funding rates on BTC perpetual futures turned net negative Monday afternoon, reflecting a market skewed toward short positioning. This suggests lingering bearish complacency and reinforces the view that spot buying, rather than leveraged positioning, has been doing the heavy lifting in pushing prices higher.

Options skew is beginning to turn more bullish, with 25 delta call pricing starting to rise relative to puts. There seems to be a call buyer following the spot bid on BTC.

It is also important to keep in mind that market liquidity remains thin. Spot volumes across exchanges are still muted, with volumes similar to levels typically seen during summer months. The implication is that it does not take a significant amount of incremental buying pressure to move prices higher. Of course, this dynamic cuts both ways, but in the near term it amplifies the impact of inflows on price action.

Relative Performance Is Beginning to Turn

Performance relative to equities is another critical development. Crypto has been largely sidelined by investors due to sustained underperformance versus other risk assets. Early signs of relative strength matter, as capital tends to follow performance. A decisive move above recent relative resistance levels would likely bring crypto back onto a broader set of investors’ radars and attract additional flows.

Reclaim of 50-day MA

Bitcoin has recently reclaimed its 50-day moving average, a development that has historically preceded meaningful upside extensions. Another level that should be on investors’ radar is BTC’s 200-day moving average, which I believe is likely to be tested. In prior corrective phases, markets have almost always seen at least one retest of the 200-day, including in 2014, 2018, and 2022. The 200-day currently sits near ~$106k. While a breakout above this level is possible, it represents a reasonable near-term target and an important area to reassess risk.

Rebalance Notes

With the above in mind, I think it is appropriate to add some risk here, while recognizing that this may ultimately prove to be a shorter-lived tactical trade.

Portfolio changes are as follows:

Core Strategy

• Allocate across ETH & BTC to increase the ETH/BTC ratio by ~2x
• Increase SOL position relative to ETH, expressing a SOL/ETH mean-reversion view
• Maintain 25% dry powder

Crypto Equities Portfolio

• Double exposure to miners
• Double exposure to financial services (GLXY, HOOD, COIN)
• Double exposure to HYPE DATs (PURR)
• Allocate remaining capital across BTC, ETH, and SOL ETFs, consistent with the revised token portfolio weights
• Reallocate a portion of BTC exposure into MSTR
• Maintain 25% dry powder