The AI Trade Cracks

Macro

The AI trade is wobbling. Nasdaq fell 4.5%, a fifth straight losing session, while the Russell 2k held green at +1.4% and 20Y+ Treasuries rose, so this was a rotation out of large-cap tech rather than broad risk-off. Micron beat and raised and still sold off, the textbook sign that expectations have run ahead of even strong delivery.

Semis got hammered, with SMH down 7% in a single session and Korea's chip-heavy KOSPI briefly tripping a circuit breaker. SpaceX has retraced hard from its IPO debut and OpenAI is reportedly pushing its listing to 2027 to chase a $1T valuation. After months of AI carrying everything, the market is asking whether the capex is sustainable and the valuations make sense.

The macro print underneath didn't help either. May PCE hit 4.1%, the highest since 2023, cementing the higher-for-longer read with September now the circled date for a hike. The one offset is oil, with Brent down another 8.1% on the week toward pre-war levels, so the forward path looks better even as the backward data stays ugly. The dollar pushed to a one-year high near 101, which is a headwind for risky assets including crypto, while the 10Y fell to ~4.38% on a flight-to-quality bid. The rates market is hawkish on policy but increasingly convinced the inflation impulse fades.

Digital Assets: Caught Holding the Risk

The selloff continued, with BTC down 5.9% and breaking $60k for the first time since late 2024, tagging ~$59.3k before stabilising around $60k, now more than 50% off its $126k peak. ETH underperformed again, down 7.9% near $1,580. Crypto traded in lockstep with the Nasdaq as the AI rotation and higher-for-longer did the damage.

The question worth working through is whether this is the bottom. There is a lot to look at but if we put it all together, we feel like we are advanced but not there yet.

Sentiment is definitely washed out. Fear and Greed sits around 18-24 in extreme fear, largely pinned there since the October 2025 top. On-chain, the share of supply held at a loss is pushing toward the 50% mark where it crosses supply in profit, a level that has historically marked cycle lows two to three quarters out. So capitulation is happening. The nuance is that in prior cycles the cross happened closer to 60%, so there may be more pain left.

The liquidity side is harder, and it's an important point. As we’ve said repeatedly, crypto is an escape valve for excess liquidity, and that liquidity arrives through ETFs, stablecoins and DATs. None is turning. ETFs saw roughly ~$1.8B of outflows this week, among the largest since launch. The structural shift worth flagging: crypto is no longer the highest-beta macro asset. AI and adjacent equities now carry a wilder vol profile. So even if macro improves and liquidity loosens, the marginal dollar likely flows into AI equities before it reaches crypto. For crypto to get attractive again, the AI trade probably has to cool first, which is what started this week.

Then there's Strategy. STRC printed an all-time low near $72 and MSTR's premium to its Bitcoin compressed toward 1.0x, and once that premium goes the accumulation flywheel stops working. Stress in the capital structure invites shorting BTC, which deepens the ~$13B mark-to-market treasury loss, which pressures STRC further, a loop that can feed itself without a single coin being sold.

Today Strategy tried to break that loop, adopting a “Digital Credit Capital Framework” that raises the STRC dividend to 12% to push it back toward par, authorizes $1B of preferred and $1B of common buybacks, and locks in a ~$2.55B USD reserve covering 17+ months of dividends and interest.

Notably, it also authorizes the first formal BTC monetization program in company history, allowing up to ~$1.25B of sales (roughly 2.5% of holdings) to fund obligations and buybacks. The market took +ve/neutral, with MSTR and STRC both rallying and BTC reclaiming $60k.

Our take:

“Advanced in the bear, but likely not the bottom"

We're deep into the bear market, but the true low doesn't feel in yet. Capitulation is happening, sentiment is bleak, and BTC is sitting on its 200-week moving average, which marked the bottom in prior cycles. Those are the right ingredients. What's missing is confirmation in the form of buying pressure ramping up.

The flows aren't there. ETFs are still bleeding, OTC shows the same, and the structural problem is that any liquidity unlocked by an eventual macro easing has a more attractive home in AI equities than in crypto. That's what changes the playbook versus prior cycles.

The Strategy framework is the right call for the company and takes the disorderly-blowup tail risk off the table, which the market rightly rewarded today. But step back and a Bitcoin treasury company now reserving the right to sell Bitcoin to cover its dividends tells you something about where we are in the cycle. The permanent bid is becoming a conditional one.

Seasonality doesn't help. The market has never really bottomed in summer, and accumulation on thin summer volume is not really expected to happen. The more likely shape is some pain into September or October, then a potential recovery depending on how macro resolves.

The catalysts are Thursday's payrolls, brought forward ahead of July 4, whether BTC defends the 200-week and the $58k zone, and how STRC trades into the new framework. The bull case needs the AI trade to cool and the funnels to turn. Neither has really happened yet.