The May Edition

By Jianing Wu & Su Young Lee

April opened with a tariff shock that rattled markets and set the tone for a volatile month. On April 2, Liberation Day, President Trump unveiled the long-anticipated tariff policy: a blanket 10% baseline, with “reciprocal” rates tied to trade deficits on US exports. Markets interpreted the announcement as a worst-case scenario, triggering a sharp equity selloff. The S&P 500 fell 20% from its all-time high while the VIX surged above 50.

Mid-month, a surprise 90-day suspension of certain tariffs and a reciprocal rate cap at 10% (except China) helped markets rebound with their third-largest daily rally since WWII, only to reverse in the days following as investors questioned the durability and clarity of the pause. The tariff recalibration appeared reactive to rising Treasury yields, with the 10-year pushing toward 4.5% against a weakening equity market. Diplomatic tension with China deepened as displayed in retaliatory moves, including a halt to Boeing deliveries and new curbs on semiconductor exports. While China eventually signaled possibilities for negotiations, progress remained fragile.

Meanwhile, macroeconomic data offered mixed signals. Headline PPI declined the most since October 2023, driven by falling energy prices. Key components of the Fed’s preferred inflation gauge, the PCE, also ticked lower month-over-month. However, the long-term inflation trajectory remains clouded by tariffs. Later in the month, Q1 GDP came in negative, driven largely by a drag from net exports, reflecting front-loaded import activity as firms rushed to bring in goods ahead of impending tariffs.

Crypto assets proved resilient amid the broader risk-off tone. BTC initially dipped to $77K but later rebounded sharply, closing the month near $94.6K. It briefly surpassed Google to become the fifth-largest global asset by market cap. Underpinning this strength was continued ETF demand: spot BTC ETFs saw daily net inflows as high as $912M, with total April flows exceeding $2.7B.

• Zooming in on BTC’s Performance: Short-term volatility vs. long-term digital gold perspective.

• Pure-Play BTC Company: The first publicly listed company structured solely to accumulate and manage BTC.

• Atkins at the SEC: New leadership signals a potential acceleration in regulatory clarity for digital assets.

• The World’s first staking SOL ETFs: Canadian issuers bring yield-generating Solana ETFs to market, ahead of the US.

• President Trump’s First 100 Days in Office: Friendly signals to crypto amidst hostile global trade policies.

001 BTC Performance in April

BTC has increasingly been positioned as digital gold, a non-sovereign store of value immune to inflation and political risk. April’s global macroeconomics have led to significant volatility in the market, complicating this investment narrative. Although BTC resembles gold in its scarcity, and gold has long served as a bulwark against market stress due to its limited supply, recent global tariffs and escalating geopolitical uncertainty have put this assumption to the test.

Compared with gold, BTC’s short-term price behavior remains subject to broader macroeconomic drivers and has behaved in a hybrid fashion between a safe-haven and risk asset: while gold reached new all-time highs in response to these events, BTC dropped alongside US equities, aligning more closely with risk-on tech assets. This pattern is supported by a sharp increase in the correlation between BTC and the S&P 500 index in early April, highlighting BTC’s sensitivity during risk-off episodes.

However, the picture evolved by late April. Roughly one month after the tariff announcements, BTC and gold had both recovered to similar levels, even as equities remained under pressure. BTC’s resilience was particularly notable in the second-to-last week of April, when it posted strong gains in the backdrop of a weakening U.S. dollar.

BTC has historically performed well in fiat debasement environments, particularly during USD declines of 5% or more over a three-month span — periods that have coincided with average gains of around 43%. While this relationship isn’t consistently strong, these episodes often align with renewed interest in BTC as a non-sovereign store of value.

Still, it's important to emphasize that despite these co-movements, BTC‘s correlation to equities, gold, and the USD remains low, highlighting BTC’s evolving, independent behavior and underscoring its continued search for definition in an evolving market.

002 Pure-Play BTC Company

Strategy’s BTC treasury model has proven remarkably successful. While numerous companies have attempted to pivot into becoming BTC accumulation machines, the market has yet to see a special-purpose acquisition company (SPAC) explicitly structured for this purpose, until now. Enter Twenty One Capital. Backed by Cantor Fitzgerald LP, Tether, Bitfinex, and SoftBank Group, the company represents a first-of-its-kind: a purpose-built, publicly listed BTC investment vehicle. Through its planned merger with Cantor Equity Partners (CEP), a SPAC, the structure offers investors a pure-play exposure to BTC via equity markets, free from legacy operating businesses. Market reception has been strong. Since announcing the deal on April 21, CEP has returned ~400%, versus BTC’s ~8.7% over the same period by May 2. The SPAC upsized its offerings from 10M to 24M Class A ordinary shares, reflecting strong institutional and retail demand. Additionally, the vehicle is raising $385M through convertible debt and a separate private placement. The implied valuation of $3.5B is anchored to BTC’s spot price at $85K.

What distinguishes Twenty One from legacy BTC treasury players like Strategy (f.k.a Microstrategy or MSTR) or MetaPlanet is its single-purpose focus. Whereas MSTR has a software business and MetaPlanet is tied to hotel development in Japan, Twenty One is structured solely to accumulate and manage Bitcoin. There is no operating business dilution, no overhead complexity, just BTC.

Further, the vehicle will not only deploy fresh capital into BTC but also merge in existing BTC holdings from Tether and Bitfinex, consolidating up to 36K BTC on day one. This would immediately place the vehicle among the largest publicly disclosed corporate holders of BTC. With additional BTC committed to being injected post-close, Twenty One would consolidate its ranking to be the largest holding companies with BTC holdings globally, behind only MSTR and MARA. The strategy also introduces a focus on metrics such as BTC-per-share and BTC yield, frameworks Strategy pioneered to quantify treasury efficiency and shareholder value increase.

Other recent entrants of BTC corporate treasury include Semler Scientific, Blockchain Group, MetaPlanet, and KULR Technology. Most adopt a financial engineering approach, raising capital via share issuance or convertibles to fund BTC purchases, with the dual goal of increasing NAV per share and improving treasury performance under macro conditions of elevated inflation and fiat debasement.

However, the level of success among these firms has varied. For instance, Semler has seen more limited NAV premium versus its BTC holdings, highlighting that not all Strategy-followers can achieve equal investor traction. The frequency of BTC purchases, quality of capital raised, and market trust in balance sheet management all appear to differentiate outcomes.

One lingering structural risk in this model, especially for highly leveraged players like MSTR, is market contagion during downside volatility. MSTR now holds ~2.63% of Bitcoin’s circulating supply, nearly equivalent to BlackRock’s IBIT (~2.87%). But unlike IBIT, MSTR carries meaningful leverage and convertible debt exposure. In the event of a credit event or refinancing failure, forced selling could have systemic implications for Bitcoin’s market structure.

As we write this note, an increasing number of companies globally, including in the UK and continental Europe, are actively looking to adopt the BTC treasury strategy. While the model can be accretive when executed well, its success is far from guaranteed. The widespread use of convertible debt to finance Bitcoin accumulation also introduces balance sheet risk. Despite our constructive outlook on BTC over the next 3–5 years, coinciding with the maturity of many of these instruments, volatility and unfavorable market conditions could challenge the notion of NAV premium, which could lead to the collapse of companies that adopted the strategy.

003 Atkins at the SEC

The SEC’s new Chair Paul Atkins has officially taken office, following Mark Uyeda’s interim leadership. Atkins is no stranger to the Commission as he previously served as a commissioner under President George W. Bush in 2008. His return has been particularly well received by the crypto community, not only because of his longstanding support for digital assets, but also due to his personal involvement as an investor in the space, though this has raised concerns among some Democrats.

As we’ve seen with other regulatory shifts under the Trump administration, change can come quickly, especially when it comes to unwinding policies viewed as overly restrictive or misaligned with innovation. Atkins’ appointment is expected to further accelerate the work of the SEC’s recently formed Crypto Task Force, led by Commissioner Hester Peirce. The Task Force has been working to shape a clear, comprehensive regulatory framework for crypto.

Atkins’ first public engagement as Chair was at a crypto-focused roundtable on April 25, where he emphasized the importance of regulatory clarity. He hinted at revisiting the role of special-purpose crypto broker-dealers and adapting custody rules to better accommodate crypto assets and blockchain technologies.

However, larger uncertainty still remains and lies in the composition of the Commission itself. Commissioner Caroline Crenshaw’s term expired on June 5, 2024, although she may remain in her seat until December 2025. If her seat becomes vacant, the identity and views of her successor could impact regulatory progress. As discussed in our weekly report, ensuring bipartisan representation in the SEC will be critical to crafting a regulatory framework that is both durable and broadly supported. While the momentum for pro-crypto reform is clear, broader thoughtful legislation, such as a well-crafted market structure bill with bipartisan backing, like FIT21 in 2024, is also essential to legitimizing the industry over the long term.

004 SOLX ETF Launch

On April 16, four spot Solana ETFs began trading on the Toronto Stock Exchange following approval from the Ontario Securities Commission. Launched by four asset managers including CI Financial (in partnership with Galaxy), 3iQ, Purpose, and Evolve, their ETFs are not only the world’s first spot SOL ETFs, but also with staking. Before this, Europe had listed SOL ETPs, and the US has seen two futures-based SOL ETFs issued by Volatility Shares. However, none of these offerings combined direct spot exposure with staking until now.

These ETFs with staking capabilities can generate an additional 2–3.5% in yield on top of SOL’s underlying returns, depending on the fund and partner arrangements. They achieve this by working with staking partners to delegate a portion of the fund’s assets, with up to 50% eligible for staking as outlined in each fund’s prospectus. Of the staking rewards, a portion is typically allocated to the ETF shareholders while the remaining portion goes to the manager, though the exact breakdown varies between issuers. Management fees range from 0.15% to 1%, with some providers waiving fees during the initial launch period.

The inclusion of staking marks a major milestone, as it brings yield into a regulated crypto ETF structure for the first time. This feature has been long requested by investors and asset managers for Proof-of-Stake protocols like Solana and Ethereum, where staking is an integral part of the token’s value proposition. Traditional investors often seek income-generating strategies, and staking now offers a way for crypto assets to align with that demand. In the short term, this additional income may make SOL more attractive relative to non-yielding assets. However, staking rewards may compress over time, and we believe that over the long term, broader fundamentals will remain the core drivers of value.

In the first two weeks of trading, total assets under management have reached $110.7 million, indicating subdued demand but consistent flows. This reflects a mix of factors: genuine interest in SOL’s performance potential and staking yield, but also a still-cautious investor base amid a volatile macro backdrop. For comparison, BTC spot ETFs globally now represent 6.21% of BTC’s market cap, and Ethereum’s spot ETFs sit at 1.71%. It remains to be seen how much demand SOL ETFs will capture, but if they follow a similar adoption to ETH, they could reach around $1.19 billion in AUM, pending if/when US SOL spot ETFs are approved.

Importantly, these Canadian ETFs are arriving ahead of any equivalent U.S. product. The launch of CME Solana futures in March suggests early groundwork for future spot listings in the U.S., as futures are often a precursor to spot ETF approval. At the same time, the SEC is also considering the question of allowing ETFs to stake a portion of their holdings, and Canada’s experience could be instructive and supportive, depending on their level of success.

Beyond ETFs, institutional adoption of SOL as a treasury asset is also becoming popular. Similar to Microstrategy (now Strategy)’s purchase of BTC for its balance sheet, Janover (now named DeFi Development Corp) has accumulated 317k SOL for its corporate treasury. On its recently-rebranded company website, the firm outlined its objective: “To provide shareholders with superior risk-adjusted returns relative to holding SOL directly, while accelerating Solana's role as foundational infrastructure in the decentralized future,” essentially becoming the first US publicly listed company with a treasury strategy based on SOL to attract capital and increase valuation.

005 President Trump's First 100 Days

Trump’s first 100 days in office have brought volatility, uncertainty as well as a shift in priorities and policies across different markets. On February 23, in the first week of his second term, Trump issued an executive order establish a Presidential Working Group on Digital Assets. He appointed David Sacks as the AI and crypto czar.

A second executive order followed on March 6, announcing the establishment of a BTC reserve and digital assets stockpile, a long-awaited move by the Bitcoin community after Trump initially floated the idea at the BTC Nashville event last year. However, while the administration adopted a more crypto-friendly stance, traditional markets tumbled. DeepSeek's tech-led selloff and newly announced tariffs on imports from Mexico, Canada, and China triggered a sharp market reaction impacting both equities and crypto markets.

After hitting record highs on February 19, the S&P 500 fell more than 10% by March 13. During the same period, BTC dropped from its January peak of $106K to $82K, while the Nasdaq 100 fell by 13%. Despite positive regulatory developments, risk-off sentiment driven by tech weakness and tariff uncertainty weighed heavily on both equities and crypto.

April brought even more volatility. Between April 3 and 8, both BTC and the S&P 500 saw sharp declines, with the S&P 500 experiencing one of its worst four-day losses since the COVID-19 crash in 2020. Markets rebounded on April 9 after Trump announced a 90-day pause on reciprocal tariffs. The tariff headlines had such a strong impact that even the appointment of Paul Atkins, a former SEC commissioner and pro-crypto advocate, as SEC Chair did little to stem the sell-off in risky assets.

Since the early April lows, markets have rebounded to February levels, with BTC recovering more quickly than both the S&P 500 and Nasdaq. It's hard to know how crypto would have performed in the absence of tariff-driven market stress, but the policy direction has clearly turned more favorable. Most SEC cases against crypto companies have been dropped, and pro-innovation figures have taken key roles in the administration, including Howard Lutnick as Secretary of Commerce. Many of the administration’s promises, however, have yet to be fully implemented. For example, actively purchasing BTC as part of the national reserve rather than simply holding existing assets or integrating more crypto firms into the traditional banking system.

006 Our Takeaways and Predictions

April was a volatile month, shaped by tariff shocks, shifting Fed expectations, and heightened geopolitical uncertainty. Although equities recovered into month-end, helped in part by strong earnings from Microsoft and Meta that lifted sentiment across the tech-heavy indices, the underlying tone remains cautious. The general consensus is that we are still in a bear market, and the recent rebound looks more like a short-term relief rally than the beginning of a sustained recovery.

Importantly, much of Q1 earnings strength has yet to reflect the impact of Trump’s trade policy. Tariffs take time to ripple through supply chains, and we are only beginning to see the early effects. For example, slowing order volumes from China, particularly from large retailers like Amazon, are just starting to show up in West Coast logistics hubs, with further knock-on effects expected in central and eastern US markets in the coming weeks.

The Fed, meanwhile, faces a growing dilemma: whether to prioritize supporting growth or maintaining labor market stability. Market pricing implies more rate cuts ahead, which may help sustain near-term optimism, but this sits uneasily beside inflation risks and unresolved trade dynamics.

In crypto, BTC has held up well, but whether it can sustain momentum remains an open question. Ethereum’s upcoming Pectra upgrade and the resurfacing debate around quantum security risks for blockchains in general add further complexity.

As we look ahead, the relief rally may still have legs, but with policy clarity lacking and macro headwinds building, we continue to see reasons for measured caution.

Key Events to Watch:

• May 12: SEC Crypto Task Force Roundtable – Tokenization: Moving Assets Onchain: Where TradFi and DeFi Meet

• May 19: CME XRP Futures Launch

• May 28: Nvidia Earnings Call

• Late May: Senate to Vote on GENIUS Act

Key Macroeconomic Data Releases:

• May 7: FOMC

• May 8: Initial Jobless Claims

• May 12: Federal Budget Balance

• May 13: CPI

• May 15: PPI

To learn more about the topics covered in this month's newsletter, contact our team or reach out to your Galaxy representative.

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