February 28, 2025

Vikara February 2025 Update – Crypto in the eye of the storm, but clear skies ahead?

Trump’s economic air pocket is here, and it is setting up the catalyst required for an alt season. We have been talking about a softer US economy for months, and while the last of the data rolls out from an irresponsible Biden administration, and US growth slows, the macro cycle is turning.

Markets have quickly assumed Trump’s sporadic way of tackling an endless series of geopolitical and economic negotiations in public is poorly planned and creates unnecessary uncertainty which is accelerating the grind lower of global growth.

The contrarian view is that Trump is executing an intentional strategy to engineer a short and sharp slow-down to lower rates, inflation and the US dollar. Trump’s largest and most immediate problem to fix is the wall of short-term US debt Biden left him. A priority for America First.

Figure 1 – Trump’s plan to get rates, the US dollar and inflation down is becoming clearer

Source: Grok, X.com

To do this, Trump needs Powell and the other Fed governors to believe he is willing and capable of driving the US economy into a recession for the good of the long-term health of the US. If they question his resolve, they may not act. This is the art of the deal.

Trump has convinced allies that he is exiting NATO, US corporates that austerity is coming, and the media that a private sector depression is close. He is breaking many of the drivers of inflation while convincing Americans that risks are tilted to the downside.

With this in mind, it makes sense that Trump isn’t publicly focused on the debt ceiling negotiations or the refinancing predicament, despite these being the two largest problems he has inherited. Markets have quickly forgotten that Trump is a master of misdirection.

Digital assets have been caught up in the uncertainty, with a combination of Trump’s tactics, the Fed’s higher for longer uncertainty, and a professional looting expedition after a string of meme coins pulled liquidity from the market. All of these are short term issues and not structural.

Call us optimists, but this is exactly what is needed for an alt coin cycle to begin. The “it happens every four years” crew are broken, the “crypto is worth nothing” voices are loud, and the Bitcoin Maxis are back on the “BTC is the only coin” thing. What a perfect backdrop for altcoins.

Sentiment sucks, the macro is changing, digital asset duration is cheap and a mid-cycle pullback has created a chance for those uninvested to buy the dip. The question is will they?

Macro

The US private sector, which is what Trump wants his presidency to be judged on, is dire. US private sector hiring has been in a recession for 29 months, the longest streak since the 2008 (Chart 1).

Chart 1 – US Hiring: Total Private Sector (2001-2024)

Source: U.S Bureau of Labor Statistics, @GlobalMktObserv

Private worker hours have fallen to the lowest since March 2020 (Chart 2). Hours worked haven’t been this low since June 2010, when the unemployment rate was 9.4% (as opposed to ~4.0% today).

Chart 2 – Average Weekly Hours of All Employees, Total Private (2008-2024)

Source: @RudyHavenstein

Private America wasn’t Biden’s priority, but it is Trump’s. This is why we believe Trump is determined to see prices of long-term bonds rise more than equity markets right now. If he brings down rates, he will restart the private sector (Chart 3).

Chart 3 – iShares 20+ Year Treasury Bond ETF (blue) versus the S&P500 (red) (Jan-Feb 2025)

Source: Tradingview.com, Vikara

Truflation is showing the real time decline in inflation, suggesting Trump’s policies are already having the desired effect (Chart 4).

Chart 4 – Truflation vs 10-year US Bond Yields (2023-2025)

Source: Steno Research, Bloomberg and Macrobond,

At the same time, corporates are talking less about input price inflation, something that will mitigate their need to raise finished goods prices (Chart 5).

Chart 5 – Mentions of Inflation on Earnings Calls (2016-2025)

Source: Bloomberg, TheDailyShot.com

Service inflation is also moderating and leading indicators like other service job openings suggest this trend is likely to continue (Chart 6).

Chart 6 – Other Service Job Openings versus Core Services CPI (less Shelter) (2017-2025)

Source: @AndreasSteno

Consumer sentiment and demand is also tapering back, with January’s retail sales printing the worst decline in a year (Chart 7).

Chart 7 – US Retail Sales (2022-2025)

Source: US Census Bureau, @MikeZaccardi

Labor markets have loosened, with job cuts hitting an all-time high in February, driven by thousands of retail store closures and Trump admin layoffs of probationary employees (Chart 8).

Chart 8 – MacroEdge Job Cuts Tracker (2023-2025)

Source: @MacroEdgeRes

The New York Fed’s Business Services Index shows activity is rolling, reaching its lowest reading since December 2023 (Chart 9).

Chart 9 – US Business Leaders Survey Business Activity Current Conditions (2005-2025)

Source: @LizAnnSonders

The US services sector likely contracted in February, dropping below 49.7 points, the lowest in two years (Chart 10).

Chart 10 – U.S Services Purchasing Managers Index (PMI)(2015-2025)

Source: Investing.com, @GlobalMktObserv

All of this to say that the cracks we have been pointing out for months are now obvious to the majority. But while consensus starts to panic, a new manufacturing cycle is underway, which is supportive of weaker data being an air pocket instead of something more sinister (Chart 11).

Chart 11 – New Orders Less Inventory vs Manufacturing PMI (Lagged 2 Months)(2008-2024)

Source: TheDailyShot.com, Bloomberg Finance L.P.

Since the election, small, medium, and large US enterprises alike have been saying that they plan to expand their capacity sharply (Chart 12). This capital will take time to be deployed, but it is a positive backdrop for the US private sector.

Chart 12 – US Capital Spending Plans: Regional Businesses, CEO’s, Small Businesses (2006-2024)

Source: LSEG, Yardeni Research, Regional Federal Reserve Banks, Business Roundtable and National Federation of Independent Business.

The current fear of economic decline will lead to a more accommodating Federal Reserve, and it should drive a weaker US dollar just like it did in trump’s first term (Chart 14).

Chart 13 – DXY Index: Trump’s 1^st vs. 2^nd Term Performance (2020-2025)

Source: Bloomberg, Steno Research, Crescat Capital, @TaviCosta

The Citi Economic Surprise index is a good leading indicator and it suggests that further US dollar weakness is likely (Chart 15).

Chart 14 –US macro surprises versus the dollar index (2024-2025)

Source: @AndreasSteno, Bloomberg and Macrobond

The turn in global M2 also points to this being a 3-4 month air pocket, with much of crypto’s weakness this year attributable to the liquidity conditions created in 4Q24 (Chart 16).

Chart 15 –Global M2 ($Bn)(Aug-2016-Jan-2018) (Black) vs Global M2 (RHS)(Today) (Red)

Source: LSEG Datastream, Bloomberg – Global Macro Investor, @BittelJulien

As the slowdown forces the majority to give up on digital assets and we’ll it certainly does not feel like it, the next turn is underway. It is a great time to be allocating to digital assets as doubt peaks in the structural thesis of the industry.

Digital Assets

There is no sugar coating the fact February has been a difficult month for digital assets. A multitude of factors led to the February sell-off:

Realization that memes are not “cultural movements” as Murad would like people to believe. Maybe a select few will follow in DOGE’s path, but DOGE was first and runs its own Dogecoin Blockchain with a growing ecosystem
Value extraction by token launch platforms like Pump.fun or Virtuals hit their peak in December, with activity recently hitting post pump lows
Libra coin drama with the President Milei of Argentina
Largest hack in crypto history with Bybit’s $1.4bn exploit targeting its Ethereum cold wallet
Short-term macro not favourable for the riskiest of risk assets, crypto
Trump “flooding the zone” strategy which is being construed as creating chaos by some market participants coupled with tariff threats that some believe will lead to inflationary pressures
Lack of movement in either a crypto strategic reserve or regulation by Trump admin, albeit they’ve only been in office 5 weeks

Figure 2 – Crypto in eye of the storm

Source: Vikara Capital

We do fundamental analysis on tokens in a similar fashion to traditional equity markets. While we clearly understand they are different business models and markets, with different data availability and reliability, it at a minimum provides a framework on the potential investment opportunity.

Unfortunately for most of the past year, fundamentals have not mattered and in fact, investors have been arguably punished for investing in tokens with actual fundamentals and purported utility. While in the short-term this has been frustrating, we continue to believe that fundamentals will prevail as the crypto market matures, regulation is formalized, and it becomes more institutionalized.

Chart 16 – Five Selected Coinbase Listed Utility Tokens Performance Since Jan 1 2025

Source: Tradingview

We are not saying crypto is broken, but a reset needed to happen. We are hopeful that regulation aids in taking out the trash in the space, at least in markets like the United States, where traditional crimes like insider trading, market manipulation and/or fraud are punishable by fines and/or prison time. As Reps. French Hill (D-AR) and Bryan Steil (R-WI) penned this month in an op-ed in Coindesk titled “Why Congress Needs to Act on Digital Assets”:

“Effective legislation and proactive regulatory engagement will ensure good actors with innovative products can thrive in the U.S. and consumers are appropriately protected from rug pulls, market manipulation, and other fraudulent activity.”

Unfortunately, those bad actors can move or operate in areas that may not enforce new laws. But that is ok. You will likely have two markets. A trusted one versus one where participants can carry on gambling on the next shitcoin. You already have that to some degree with exchanges where Coinbase is a regulated exchange under US law versus some Asian or African exchanges under local country law that require no KYC and/or are willing to list less credible tokens, for example.

A culmination of the above events has battered sentiment. It currently sits at 10, which anything under 30 signals “fear.”

Figure 3 – Crypto Fear & Greed Index

Source: Coinglass

Sentiment has only been this low once in the last five years. A three-day period in mid-June 2022 when it dropped to 6 (Chart 17). Not even after the FTX collapse was it this low. Investors have historically been rewarded when buying at sub-30 levels of sentiment.

Chart 17 – Crypto Fear & Greed Index vs Bitcoin (Dec 31 2019 – February 27 2025)

Source: Coinglass

Even while the market has been on its back, several new, large cap tokens came to market and have done surprisingly well. These include Berachain (BERA) and Story Protocol (IP). It is refreshing to have real businesses launch tokens versus the dearth of meme token garbage that has come to market over the past 8 or so months.

Investors have been rewarded for buying during periods where there is extreme negativity. That is now. Add in that valuations have come down on many tokens with the best fundamentals. One is Echelon Prime, a gaming and AI business, which is now trading at the same level as their Series A in October 2021, only 6 months after founding.

Finally, while favourable macro tailwinds haven’t materialized as fast as we had hoped, M2 looks to have bottomed over the past month. Crypto has been highly positively correlated to increases in M2 over time, with a lag. If this relationship holds, this period of lower prices will have been viewed as a buying opportunity.

Chart 18 – M2 liquidity (white line) vs BTC (orange line)

Source: x.com

While the crypto news cycle was monopolised by negativity, there was plenty of positive news during the month.

Real-world asset (RWA) tokenization platform Ondo Finance unveiled a new Layer 1 called “Ondo Chain” that is built to allow institutions to tokenize real-world assets, along with additional use cases such as prime brokerage with a cross-collateralized margin for RWAs, staking tokenized RWAs and wealth management.

Figure 4 – Ondo partners with leading financial institutions on its own Layer 1

Source: x.com

Ondo Finance also launched a new business aimed at bringing US securities, including stocks, bonds and exchange-traded funds (ETFs) onchain.
RWA Layer 1 Chintai (CHEX) and R3 Sustainability announced the launch of a $795m tokenized ESG fund. Chintai also announced that RealNOI is using its Chinatai Nexus technology to power RealNOI’s $570m tokenized real estate platform.
Ethena (ENA), the developer behind the USDe stablecoin, the third largest stablecoin behind Tether’s USDT and Circle’s USDC, raised $100m in a private sale from notable investors Franklin Templeton and Fidelity Investments VC arm. The funding is aimed at supporting the launch of a new blockchain and the introduction of iUSDe, a token specifically designed for traditional financial institutions.
UBS announced that they are testing blockchain technology for digital gold investments on ZKsync (ZK), aiming to increase accessibility and ease of gold investing for retail investors. ZKsync is L2 scaling solution that uses zero-knowledge proofs (ZK-proofs) to improve the scalability, security and privacy of the Ethereum mainnet.
ai (FET), one of the founding members of the Artificial Superintelligence (ASI) Alliance, launched ASI-1 Mini, the first Web3-native large language model (LLM) designed to promote autonomous agent workflow.
Hedge fund and market-making firm Citadel is looking to enter the crypto market by becoming a liquidity provider for major crypto exchanges.
DekaBank, one of Germany’s largest financial services companies, launched a crypto trading and custody services for institutional clients.
Robinhood plans to launch cryptocurrency trading products in Singapore through its Bitstamp subsidiary, aiming to roll out services by late 2025.
Web3 travel platform Travala (AVA) is expanding cryptocurrency-based hotel bookings through a new partnership with Trivago, a global accommodation metasearch engine, allowing users to pay in more than 100 different tokens.
US NGO Rainforest Foundation announced a new initiative called “Treasury for the Trees” that aims to raise 100 BTC for a strategic Bitcoin reserve.
South Korea has lifted its seven-year ban on institutional cryptocurrency investments, allowing corporations and professional investors to invest in regulated digital assets.

In regulatory news, the new and improved Securities and Exchange Commission (SEC) has been busy killing the prior administrations cases against industry leaders. This month the agency agreed to throw out cases or shut down investigations against Coinbase, Uniswap, Consensys, Robinhood and Opensea.

Figure 5 – Uniswap response to SEC investigation being closed with no action

Source: x.com

Makes you question the veracity of these investigations and cases given some were outstanding for several years with no progress.

In personnel news, President Trump announced the nomination of Brian Quintenz to lead the Commodities Futures Trading Commission (CFTC). Quintenz currently heads policy for the Web3 venture firm a16z Crypto. Interestingly he announced his nomination on Farcaster, a Web3 social media platform.

Figure 6 – Head of CFTC nominee Brian Quintenz post on Farcaster

Source: Farcaster

As noted earlier, some in crypto are disappointed at perceived lack of attention the Trump admin is paying to crypto, especially after all the promises made during the campaign. While it has only been five weeks, we are sympathetic to the view, especially around no commentary on a crypto strategic reserve besides one line from so-called White House crypto czar, David Sacks, that “a reserve would be considered.”

While many states have pulled ahead of the federal government in the potential creation of cryptocurrency reserve funds, with 18 in the queue, some have already voted no. Montana voted down a bill 41-59 this month, joining North Dakota, Pennsylvania, South Dakota and Wyoming that have voted down cryptocurrency reserves. Interestingly, Montana’s four federal legislators (two in senate and two in house) are all strong supporters of crypto.

Also this month, a coalition of tradfi institutions including the Bank Policy Institute, American Bankers Association, Securities Industry and Financial Markets Association, amongst others, sent a letter to David Sacks, calling for the immediate rescission or revision of policies imposed by federal banking agencies under the previous administration.

Figure 7 – TradFi coalition urges crypto banking overall

Source: Bank Policy Institute

They argued that restrictive policies have left US banks lagging international competitors in the digital asset sector (we agree given our own experiences). It’s now gratifying to watch those that did or said nothing or worse, for years under the prior administration, change their tune as soon as a new admin in place (see Bank of American’s Brian Moynihan who announced On February 27 that BofA will likely launch its own stablecoin). Better late than never we guess.

In our own backyard, a survey by Swyftx released on February 19 stated that a poll of over 2,000 Australian voters found that 59% of current crypto investors are more likely to vote for a pro-crypto candidate this election, which could mean a pro-crypto voting bloc of around 2m Australians. It’s hard to know how much of a role crypto investors played in the November US election, but surely, we’ll see some pro-crypto comments by those in Canberra ahead of the coming election.

Lastly, our friends at Independent Reserve released a survey this month that shows almost a third of respondents reporting they currently own or have owned crypto.

Chart 20 – Australia crypto adoption (2019-2025)

Source: Independent Reserve

Also, nearly 20% of those surveyed said their bank had prevented them from buying crypto or had delayed a payment to an exchange. Amen!

Professional crypto investors often lament that they are not taken seriously. Well, the past month or so is a perfect example as to why many in traditional finance, namely equity markets, remain sceptical. Lots of goodwill has been lost over the last two months, starting with the launch of TRUMP followed by the events we noted earlier. The strange rise and fall of FTX set crypto back years, but it was a different market back then. Few had crypto accounts and even fewer paid attention. But Donald Trump changed all that. Way more eyes are on the space now. These recent events once again put a spotlight on why sensible regulation needs to be put in place. Hopefully a new dawn is around the corner because the industry cannot continue endure self-inflicted wounds forever.

Tokens

Given the shenanigans with the LIBRA meme coin launch along with last month’s TRUMP and MELANIA launches, all on the same Solana platform called Meteora, largely by the same group of scoundrels, we thought we spend some time on the collateral damage they have caused before we jump into this month’s token write up.

Without going into the detail on history, characters, etc. given there are dozens of articles online, a group of crypto promoters convinced Argentina President Milei to promote a meme coin called “Viva la Libertad” under token LIBRA, that would be “dedicated to encouraging the growth of the Argentine economy.”

Figure 8 – President Milei post on X promoting meme coin LIBRA

Source: x.com

Unfortunately for Milei, it was a typical sniped deal (insiders bought the token on launch using a sniper bot), which was then “rugged,” meaning the early investors sold the LIBRA tokens almost immediately, causing the price to plummet from a high of $4.00 to $0.10 in a matter of hours (Chart 21).

Chart 21 – Libra/USD Collapse

Source: Dextools.io

Given most of the characters involved are in the US, one would think that there could and would be charges levied against the individuals, including Barstool’s Dave Portnoy (a few of them were also involved in the TRUMP and MELANIA tokens launches). But given the lack of regulations, they may walk away unscathed, except for Milei, who is facing impeachment charges.

This brings us back to Solana and meme coins. If you’ve read our previous monthlies, we’ve long been negative on Pump.fun and in turn Solana. Pump.fun’s mission appears to be to extract value from the average punter while distributing that value primarily to Pump.fun’s owners and secondarily to Solana dexs and Solana itself, extracting liquidity while doing reputational damage.

Since March 2024, Pump.fun has earned $576m in fees solely off launching shitcoins, 99.99% which have gone to effective zero. That has come to a grinding halt, thankfully, with less than 200 tokens moving off the bonding curve and onto a dex on February 26, the lowest level since the Pump.fun pump started. We can only hope this goes to zero ASAP.

Chart 22 – Pump.fun New Tokens: Graduated to Dexs (last 3 months)

Source: Blockworks Research

$100k market cap on Pump.fun. Raydium’s tokens got smoked on the news (coupled with the negative sentiment on Solana memes), which demonstrates the risk to project’s that are heavily reliant on the fast and/or gambling money.

Hopefully this drama forces Solana to target more real projects versus what appears to be a chain that has embraced to full degen mode, turning the promising Layer 1 into a Gambling Den.

Echelon Prime

Echelon Prime is an ecosystem of blockchain-enabled games that includes trading-card game (TCG) Parallel TCG built on Ethereum, AI simulation game Colony built on Solana (launching Q1 2025) and a 3rd person extraction shooter game called Tau Ceti built on Base’s B3 (launching Q3 2025).

Parallel Studios is the development studio behind Echelon Prime. Founded in 2021, they raised $50m at a $500m valuation led by Paradigm in October 2021. They completed a $35m Series B in March 2024 from notable investors Distributed Global, The Operating Group, VanEck, Focus Labs, Big Brain Holdings, Solana Ventures, Base, amongst others.

PRIME is the native token of the Echelon Prime ecosystem. It is both a utility and governance token for the broader Echelon ecosystem as well as individual games and is used to power various token-gated products, services and experiences including the purchase of NFTs used in game.

The PRIME token was launched via an airdrop in March 2023. The token price reached over $28 in March 2024, but has since dropped nearly 84% to $4.62 for a circulating supply market cap of $165m and an FDV of $511m, only slightly higher than the Series A valuation 6 months after founding.

Chart 23 – PRIME token performance (March 2, 2023 – February 27, 2025)

Source: Coinmarketcap

Wayfinder Protocol

Beyond gaming, Parallel Studios is developing a protocol known as Wayfinder, which is a blockchain-enabled tool designed to enable autonomous AI agents that are user-owned. Wayfinder was used to build their second gaming release, Colony.

Wayfinder will eventually have a native token, tentatively called PROMPT. As per the Wayfinder whitepaper, 40% of the total supply will be distributed to PRIME holders who stake their PRIME tokens (called “cache” in the Echelon ecosystem).

We will be releasing a detailed research report on Echelon Prime in the coming days. If you would like access, please a member of the Vikara team.

Luke McFarlane
Co-Founder & Portfolio Manager
Vikara Capital

Mark Riccio, CFA
Co-Founder & Portfolio Manager
Vikara Capital

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Vikara is a liquid, open-ended fund investing in digital assets (excluding Bitcoin and Ethereum) with no lockups (add or redeem monthly). Vikara’s proprietary investment and rigorous risk management processes aim to outperform the broader digital asset markets. Founders have over 40 years combined investment experience at Millennium, Balyasny, Platinum, Merrill Lynch and Macquarie.

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