We have mixed feelings about this past month’s events. The optimist in us believes we are very close to peace, while the pessimist in us is wants to build a bunker and stock up on tinned food.
Watching Isreal and the US dismantle Iran’s leadership and nuclear facilities is surreal. It sets a dangerous precedent for all nations engaging in war, while highlighting that modern warfare will not look very different versus the last large-scale war. No one, in any location, is safe.
The silence from Middle Eastern leaders after US attacks spoke volumes. It is worth rewatching Trump’s speech at the Saudi-US Investment Forum from May, as his message hits harder today than it did at the time. Iran is the only country still fighting in the region, while its neighbours have moved on.
The growing wealth in the region is going to accelerate regional security deals and US arms sales. Trump’s message was simple: endless diplomacy without action is over. The reverberation since the attacks has changed the balance of power at the negotiating table(s).
NATO has announced increases in defence spending, China has signed a trade deal, and Germany is advocating for trade concessions. It is time to make a deal or live with the consequences. If trade deals are achieved, the path forward for global growth is much more positive.
In the meantime, economic data continues to worsen, with China’s growth languishing while US data decelerates. As the PBOC prints money to support growth, the Fed has pivoted away from being data dependent towards politically motivated and diverging forecasts.
The altcoin cycle will not begin until the Fed capitulates. Fortunately, we believe we are very close, with two Federal Reserve governors commenting that rates should be cut as early as July. Powell may be able to preach from the same hymnbook for another month, but incoming data will force change.
Monetary loosening at a time of already untenable fiscal policy is a return to a backdrop we know well. No combination of unrealized capital gains tax, land tax, death tax, carbon tax, or war tax, will solve western governments addiction to debasing fiat currencies.
Digital assets have historically provided substantial returns for investors during periods of loose fiscal and monetary policy, and while we have seen many false starts since inflation peaked in 2022, we are nearing a time when investors will seek duration while moving out on the risk curve.
The turn in the macro is occurring amid terrible altcoin sentiment, after two years of relentless Bitcoin dominance. It isn’t for the faint of heart, this is where solid returns have been generated.
Chart 1 – % of asset (ex stablecoins) outperforming Bitcoin over 90-day period (2019-2025)
Source: LSEG Datastream, Global Macro Investor
Macro
There might be plenty to be positive about if the US can finalise its trade negotiations, with the only thing stopping lower rates being a stubborn Federal Reserve Chair that believes forecasts are better than actual data (Chart 2). Import inflation seems non-existent.
Chart 2 – US import price indexes for selected categories (12-month % change) (2005-2025)
Source: US bureau of Labor statistics
We believe inflation will continue to moderate, with broad declines across US producer price inflation showing prices softening across nearly all sub-categories (Chart 3).
Chart 3 – Share of PPI sub-categories with positive YoY inflation (2000-2024)
Source: Haver Analytics, Goldman Sachs; @MikeZaccardi, @JeremyDSchwartz, @fundstrat
Nonfarm payrolls have been revised down 12 out of the last 15 months (Chart 4), confirming labour markets are weakening faster than the estimated numbers that keep getting revised lower suggest.
Chart 4 – Unemployment expectations versus non-farm payroll (2001-2025)
Source: US Bureau of Labor Statistics, University of Michigan, Apollo Chief Economist, @GlobalMktObserv
Labor market respondents who say jobs are plentiful less those who say they’re hard to get declined again in June to a new cycle low (and a level last seen in early 2017) (Chart 5).
Chart 5 – Conference Board’s labor market differential (1970-2025)
Source: Macrobond, Conference Board, @NickTimiraos
In addition, 66% of US consumers expect an increase in unemployment over the next 12 months, the highest level since 2008 (Chart 6).
Chart 6 – Unemployment expectations versus Risks of Personal Job Loss (1997-2025)
Source: University of Michigan, @KobeissiLetter
The US ISM composite index is below 50, meaning that there is very high likelihood that the US is already in a recession (Chart 7).
Chart 7 – US ISM Composite Index (both services and manufacturing PMIs) (2000-2020)
Source: Haver Analytics, Institute for Supply Management, Rosenberg Research, @EconguyRosie
While the Conference Board Index of Leading Economic Indicators is down 38 of the past 41 months, which is a recession indicator (Chart 8).
Chart 8 – Conference Board LEI Drawdown from ATH (1973-2025)
Source: @nsquaredvalue
While the US continues to weaken, China is going from bad to worse, with new and existing home price declines accelerating again, despite property prices falling since 2021 (Chart 9).
Chart 9 – China Existing Home Prices MoM (2017-2025)
Source: TheDailyShot.com
China’s worsening credit data shows that the housing market is unlikely to get better any time soon, with outstanding loan growth decelerating to a new record low (Chart 10).
Chart 10 – China Yuan Loans CNY YoY (2015-2025)
Source: TheDailyShot.com
While both China and the US should be easing, geopolitical decoupling has prevented China from easing ahead of the Fed as it needed to rebase its foreign reserves into gold (Chart 11).
Chart 11 – Share in global reserves (2017-2025)
Source: IMF, SG Cross Asset Research/Forex, @GlobalMktObserv
This is not a new trend, despite it accelerating as tension have risen in recent years, with other central banks also increasing gold purchases (Chart 12).
Chart 12 – Central Bank purchased of gold (declared versus estimated) (2010-2024)
Source: World Gold Council, Metals focus, IMF, Bloomberg, @Barchart
With central banks opting for gold, it is not surprising that the US dollar is on track for its worst performance in three decades (Figure 1).
Figure 1 – US Dollar Year-to-Date Performances (1996-2025)
Source: Bloomberg, Crescat Capital, @TaviCosta
While the rest of the world’s central banks are cutting rates at their fastest pace this year, the two largest banks are yet to enter the race yet (US and China) (Chart 13).
Chart 13 – Monthly number of global central bank policy rate cuts (2001-2025)
Source: BofA Global Investment Strategy, Bloomberg, @MikeZaccardi
The PBOC’s $139 billion injection looks impressive, it is nowhere near the amount needed to restart demand (Chart 14).
Chart 14 – China’s People’s Bank: Net Liqudity Injections (2021-2025)
Source: @QuintenFrancois
We believe US and Chinese easing is the missing piece for a sustained altcoin rally, bringing US 30-year real rates down from their highest level since November of 2008 (Chart 15).
Chart 15 –US 30-year real rate (%) (1997-2025)
Source: BofA Global Investment Strategy, Bloomberg, @Mayhem4Markets
Digital Assets
Volatility ramped up for altcoins in June. How could that be you ask? I thought we were at peak vol last month. And the month before that. And the month before that. Well, when there is WWIII, then no WWIII, lower rates in July, no lower rates in July, higher oil induced inflation, no inflation, China trade deal, no China trade deal, what can we except from the only liquid asset class that is traded 24/7/365. This can be seen in the June price performance of five large cap, widely held tokens that are all traded on Coinbase – Solana, Sui, Chainlink, Near and Ondo.
Chart 16 – Utility token price performance (June 2025)
Source: Tradingview, Vikara Capital. As at 2pm AEST June 29, 2025
Take Sui, a $30bn FDV Layer 1, which is down nearly 20% in June and got as high as $3.56 and as low as $2.29 during the month.
In terms of broad token price performance, once again utility tokens lagged the memes. The only subsector that outperformed memes was DeFi, driven by the idea that it’s the best way to benefit from stablecoin growth (ENA, SYRUP, PENDLE, for example). Below is a table of 25 widely held tokens, five from five different categories: Layer 1s, DePIN/RWA, AI, DeFi and Memes.
Figure 2 – 25 widely-held tokens June 2025 price performance
Source: Haruko; Vikara Capital
Bitcoin once again outperformed altcoins, with the BTC dominance reaching 66%, the highest level since it bottomed at 39% in September 2022.
Chart 17 – Bitcoin Dominance (June 2020 – June 2025)
Source: Tradingview; Vikara Capital
Even as digital asset adoption continues to grow, regulation firms up, and the world’s largest institutions enter the arena, much of the broader, liquid token ecosystems are on their bums, still reliant on increasing liquidity to bring buyers in (there is more to the story for many tokens than just liquidity, like junk tokenomics or garbage businesses models, but we look to avoid such problem investments).
That said, we keep hearing, seeing and even saying so ourselves, that once the Fed properly pivots, altcoins will outperform Bitcoin. Lower rates = risk on = crypto go up. But how have lower rates and crypto been correlated historically?
The effective fed funds rate (FFR) dropped from 2.4% to effectively zero between July 2019 and April 2020 and stayed there. From April 2020 to their peak in November 2021, the altcoins market cap (OTHERS on Trading View) went up $11bn to $431bn, up nearly 39x (caveat many new tokens were added to the index during that period, but irrespective altcoins surged on the back of lower rates).
Chart 18 – Effective Fed Funds Rate v Others (all tokens less top 10) (March 2014 – Present)
Source: Tradingview; Vikara Capital
How about more recently as market participants seem to try and front run every decision coming out of the Eccles Federal Reserve Board Building? We got a snippet of what may be soon to come late last year.
The FFR dropped from 5.3% to 4.3% between August 2024 and January 2025, with altcoins increasing 1.9x during that period, only to sell off as Fed moved to a higher for longer stance.
Point is these are both examples of how altcoins perform in a falling interest rate and risk on environment. Thus, the hopium charts we see and post ourselves are supported by past performance. Here’s a couple for the road.
Chart 19 – Global M2 (bn) w 12-week lag vs BTC
Source: Global Macro Investor
Chart 20 – Altcoin Season Index (altcoins with ROIs > BTC over past 90 Days)
Source: Into the Cryptoverse
The first shows BTC has run to move higher if historical correlations hold while the second show alts are likely starting from the bottom and waiting for confirmation that the liquidity team is here before it’s moon season.
Clearly the next question is when does the Fed lower rates? If it was up to the executive branch, yesterday (see Figure x), but Fed Chair Jerome Powell seems steadfast to hold rates higher for longer, even as his lieutenants are jawboning otherwise.
Figure 3 – President Trump social media post on June 24, 2025 regarding Jerome Powell
Source: x.com
Fed Governor Michelle Bowman stated that she would favor an interest rate cut at the July 29-30 meeting so long as inflation pressures stay muted, while Fed Governor Christopher Waller said that the Fed should “look through” one-time price increases from tariffs thus policymakers should be looking to lower interest rates as early as July.
Powell himself said he would be open to cutting rates if it were not for tariffs but poured water on the idea of a July rate cut stating they need more data to determine if tariffs are inducing inflation.
This is reflected in the CME FedWatch, which tracks the probability of changes to the Fed funds rate. Currently, their curve is forecasting five 25bps rate cuts over the next 12 months, with the first occurring in September. Can degens wait that long?
Chart 21 – CME FFR Futures forecasting five 25bps rate cuts over next 12 months
Source: CME; Vikara Capital
While stablecoins were all the rage in June, other industry news we found of interest is below:
- A bipartisan group in the U.S. House introduced the Digital Asset Market Clarity Act of 2025, aiming to define regulatory boundaries between the SEC and CFTC over digital assets.
- Shopify announced a partnership with Coinbase and Stripe to facilitate USDC stablecoin payments on the Base network, allowing consumers to use USDC at any Shopify-powered merchants.
- Staked Ether (ETH) hits a record high, with over 28% of Ether’s supply is now locked, signaling tightening liquidity conditions.
- Chainlink (LINK) and Mastercard have partnered to enable card users to buy crypto “directly onchain through a secure fiat-to-crypto conversion.”
- Pudgy Penguins (PENGU) launched a Web3 game called Pengu Clash on The Open Network (TON) blockchain.
- Texas became the first US state to commit public funds to a standalone Bitcoin reserve, aiming to treat BTC as a long-term strategic asset, after Governor Abbott signed the bill.
- Japan’s Financial Services Agency (FSA) proposed a sweeping reclassification of cryptocurrencies that would clear a path for the launch of crypto exchange-traded funds (ETFs) and introduce a flat 20% tax on digital asset income.
- Thailand announced that they will waive capital gains taxes on crypto sales through licensed platforms from 2025 to 2029.
- Payments firm Stripe announced the purchase of crypto wallet firm Privy.
The treasury token bonanza continued with multiple non-BTC, ETH or SOL strategies launched.
First, Austin, Texas-based exercise equipment company Interactive Strength Inc. (NASDAQ: TRNR), announced that they secured a $500m facility to acquire AI token Artificial Superintelligence (FET) tokens. The funding is from private equity firm ATW Partners and crypto market maker DWF Labs. Interestingly, DWF was one of the original funders behind Fetch.ai, which merged with SingularityNET and Ocean Protocol to form Artificial Superintelligence. One might assume they are using this to offload locked tokens.
Next was perps dex Hyperliquid. Three pubcos announced the acquisition of HYPE tokens.
- Eyenovia, Inc. (NASDAQ: EYEN) announced that it launched a $50m PIPE financing with institutional accredited investors to be used to purchase HYPE tokens.
- Lion Group Holding (NASDAQ: LGHL) announced it secured a $600m facility from ATW Partners to establish a cryptocurrency treasury reserve, with HYPE tokens as the “primary reserve asset” of the firm’s layer 1 treasury reserve asset strategy, which will also feature Solana and Sui.
- Canada’s Tony G Co-Investment Holdings Ltd. (CSE: TONY) announced the purchase of 10,388 HYPE token as part of its long-term digital asset treasury strategy.
While we understand why these listed companies are doing what they are doing as most have average businesses, we struggle to understand why these funds are providing large amounts of capital to these strategies (unless of course there are ulterior motives like having the vehicle purchase their bags). But the biggest issue for us is single asset risk. Take Hyperliquid. It’s a perps dex. While it’s built on it’s own Layer 1 blockchain, and they claim to be positioned to be more than just a perps dex, it’s still a single asset. What happens if it gets hacked? What happens if volumes dry up? What happens if another dex comes around and takes volume? As we’ve discussed in previous letters and socials posts, we really struggle to understand the long-term strategy of these newly branded pubcos. Guess they are of the view that if the money is there, take it and figure out the rest later.
Last, the Federal Housing Finance Agency (FHFA) announced that they directed Fannie Mae and Freddie Mac to consider cryptocurrency holdings help on U.S.-regulated exchanges as assets in mortgage evaluations.
Figure 5 – US FHFA’s Agency letter directing agencies to consider crypto as collateral
Source: FHFA.gov
Imagine borrowing to buy a house against a big bag of Fartcoin?
As noted earlier, stablecoins caught most of the market’s attention in June, with the further advancement of the GENIUS Act. We jumped on the bandwagon and published a 10-page report, covering topics such as What are stablecoins? How do they work? What are their benefits? Uses cases? Risks? And more. A full version of the paper can be found here: Vikara Special Report – Stablecoins
A few charts from the paper that exemplify the growing importance of stablecoins are below
Tether is now the 19th largest holder of treasuries globally and was the seventh largest purchaser of US treasuries in 2024 (Chart 22).
Chart 22 – Tether was the seventh largest buyer of US Treasuries in 2024
Source: x.com @paoloardoino
Onchain USDT transfers reached $1trn in May 2025 (Chart 23), demonstrating Tether’s critical role as the most widely used asset in the crypto market, underpinning the majority of crypto spot and derivative volumes.
Chart 23 – Monthly onchain USDT transfer volume reached an all-time high >$1trn in May
Source: Token Terminal
The US government and Tether’s future is likely wedded together, with the stablecoin market cap forecast to surpass the largest holding of US treasuries by a foreign entity.
Chart 24 – Standard Chartered forecast stablecoins to be largest holder of UST Treasuries by 2028
Source: Jon Egilsson; data from US Department of the Treasury
How to Invest in the Stablecoin Theme?
Given that we manage a liquid digital asset fund, we look to benefit from the adoption of blockchain technology and the associated liquid tokens that trade on exchanges. Thus, the best way is to invest in the Vikara Fund.
That said, we will be sending a report sent to our LPs on three tokens that we believe may benefit from increasing adoption of stablecoins. If you are interested in receiving the research piece, contact us directly.
Luke McFarlane
Co-Founder & Portfolio Manager
Vikara Capital
Mark Riccio, CFA
Co-Founder & Portfolio Manager
Vikara Capital
Contact Us
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.
Vikara, in Sanskrit, describes the process of change. Its definition is constantly evolving, changing with economic cycles, technology, and geopolitics. It is a transformation of thought or logic, a modification in the direction of travel, an alteration in action or participation. It is one thing to want change, but another to drive it. We believe in a world where commerce doesn’t need intermediaries. Where people are paid directly for content, time, and effort. Where privacy, data and free speech is given, not something to opt-in for.
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