Trakx Weekly Update: Crypto Crumbles

Key Crypto Market Figures

CTIs Weekly Performance

Digital asset markets suffered one of their worst weeks since the middle of 2024, with the major tokens dropping by double-digit percentage points (although this was nothing compared to the 38% slide in the price of the privacy coin Zcash after researchers using AI software discovered a four year old bug that could have resulted in unlimited supply). As a result of the slide, our flagship large cap Top10 Crypto CTI, dropped 14%. The worst performer though was the DePin CTI, after it slumped 20%. Such was the breadth of the sell-off that only the Bitcoin Momentum CTI managed to avoid the red zone, with an unchanged performance over the preceding seven day period.

Rotation Worries

A popular explanation for the recent weakness in digital assets, particularly market leaders Bitcoin and Ethereum, is the “capital rotation into AI” thesis (what happened to the symbiotic narrative of a few months back?). The argument has gained traction amid reports that Anthropic is pursuing an IPO at a valuation approaching $1 trillion, potentially to be followed by OpenAI at a similar valuation and, eventually, SpaceX, whose $1+ trillion valuation is increasingly tied to artificial intelligence following the merger with Musk’s xAI venture back in February.

The comparison often drawn is to the late-1990s dot-com boom, when capital became heavily concentrated in internet and tech stocks, attracting investor attention and liquidity at the expense of alternative asset classes. The logic is straightforward: institutional investors operate with finite risk budgets, and the prospect of participating in what many see as a once-in-a-generation AI revolution may be diverting capital away from cryptocurrencies.

While intuitively appealing, the evidence suggests Bitcoin’s recent pull-back is more likely being driven by macro liquidity conditions than by direct competition from future AI IPOs. The strongest support for this view comes from fund-flow and market-liquidity indicators. US spot Bitcoin ETFs have experienced significant net outflows in recent weeks, while broader risk-off positioning has been reinforced by persistent geopolitical uncertainty, a consequence of the continued failure to reach a resolution in the US-Iran conflict and the resumption of airstrikes between Israel and Iran—a topic we examined in detail in our latest Monthly Update. Importantly, these ETF outflows and risk-reduction trends began before many of the anticipated AI listings reached their current stage of development. Hence, the AI narrative may explain where investor excitement currently resides, but correlation is not causation. The weight of the evidence suggests that liquidity conditions, ETF flows and geopolitical risk remain the primary drivers of digital asset prices. As is so often the case in crypto markets, macro remains the dominant force.

Saylor Sells, Sentiment Sours

Investor sentiment towards market leader Bitcoin was further dented by the highly publicised decision by Strategy, the original DAT led by Michael Saylor, to sell 32 BTC for approximately $2.5 million—its first reported Bitcoin sale since 2022. In absolute terms, the transaction was immaterial, representing less than 0.004% of the company’s roughly 843,700 BTC holdings. However, the market reaction was disproportionately negative because the sale challenged one of the most deeply embedded narratives in Bitcoin investing: Saylor’s long-standing “never sell” philosophy.

Although Strategy stated that the proceeds would be used to fund preferred stock distributions and reiterated its commitment to Bitcoin as a long-term treasury asset, investors viewed the sale as a symbolic shift. Strategy’s share price also fell sharply following the announcement, reflecting concerns that even the most committed corporate Bitcoin holder may be becoming more sensitive to financing costs, liquidity requirements and broader market conditions.

World Cup Concerns

Football—or soccer, for our American cousins who are hosting this year’s tournament—is set to dominate headlines over the coming month as the FIFA World Cup gets underway this week. However, alongside the excitement, the tournament has also highlighted growing regulatory scrutiny of the crypto industry’s marketing practices.

Ahead of the “kick-off” (pun fully intended!), the UK’s financial regulator issued a formal warning to Premier League clubs regarding sponsorship agreements with unauthorised cryptocurrency exchanges and trading platforms. The FCA argued that such partnerships could expose clubs to legal liability, reputational damage and potential money-laundering risks. The FCA expressed particular concern that crypto firms are using high-profile sports sponsorships to gain legitimacy and market speculative financial products to retail investors through trusted sporting brands. Indeed, it indicated that it has already contacted specific clubs over existing arrangements and has signalled a willingness to take enforcement action where it believes firms are breaching UK financial promotion rules.

Sources: Trakx, Coingecko, Alphavantage

Market Trends

• Bitcoin set for ‘choppy summer’ as capital chases high-flying AI stocks, K33 says: CoinDesk
• Strategy shares fall after selling $2.5 million in bitcoin, its first sale since 2022: CNBC
• UK regulator warns soccer clubs over sponsorship deals with unauthorized crypto firms: The Block
• ZEC Crashes 38% as Zcash Discloses ‘Critical Counterfeiting Vulnerability’: Decrypt
• Crypto tax proposals weighed ahead of Tuesday House hearing: Cointelegraph
• Cardano founder floats splitting his own blockchain after warning more apps will die: CryptoSlate

Trakx CTIs Performance

Sources: Coingecko and AlphaVantage

*Return of bitcoin is calculated since 01/05/2020, while CTIs performances were calculated since their respective launch date.
**Includes simulated performance.
***The risk signal is determined according to the historical volatility level, the higher the riskier.

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Disclaimers: No Investment Advice. Index returns and statistics are for illustration only. Index returns do not reflect any transaction costs or expenses. Past performance does not guarantee future results. The information provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the newsletter content as such. Trakx.io does not recommend that any cryptocurrency should be bought, sold, or held by you. Readers shall conduct their own due diligence and consult their financial advisors before making any investment decisions.