MARKET INSIGHT III | TRADITIONAL DIGITAL

July 15, 2025

Q3 Momentum: Break Out of the Range

As we move into Q3 2025, digital asset markets are showing signs of renewed momentum following a prolonged period of tight consolidation and market structure headwinds.

As we move into Q3 2025, we’re seeing signs that crypto markets are breaking out of their prolonged stasis, not just in price, but in structure. After months of frustrating consolidation, a decisive early July breakout suggests we may be entering a new phase, one where timing and adaptability matter more than ever.

Beneath the surface, we’re tracking a deeper evolution: the volatility regime is shifting as institutional flows reshape how optionality is priced. From covered call selling and structured product issuance to the TradFi-style compression of implied volatility, crypto is no longer playing by its old rules. In this Market Insight, we break down what’s changed, what’s driving it, and how we’re positioning the fund to capitalize on this transition with discipline and flexibility.

1. Market Recap: A Technical Breakout Amid Structural Shifts

Until late June, digital assets were defined by frustratingly narrow, range-bound price action. That stasis was not random, it was the result of several interlocking structural forces that are continuing to reshape the market beneath the surface.

Volatility Compression: Implied volatility in Bitcoin declined sharply, largely due to institutional activity:

• Covered call selling against spot positions

• Hedging activity linked to convertible bond issuance (e.g., MSTR)

• Growing issuance of exotic structured products for yield enhancement

• A wave of relative value vol traders entering crypto markets

  
  

The result has been the rapid “TradFi-cation” of crypto volatility. Implied vol is now closely tracking realized vol, rather than trading at a premium - except briefly after sharp directional moves. Over time, we expect:

• A more normalized, upward-sloping vol curve

• A shift toward more stable pricing of optionality

• Continued call skew (calls priced over puts), though this dynamic may

• reverse depending on future positioning flows

  
  

If these dynamics sound familiar, they should. We’re witnessing a paradigm shift: crypto’s historically idiosyncratic, retail-driven vol regime is giving way to one that increasingly mirrors U.S. equity markets. Traditional finance is rewriting the playbook, bringing with it a new set of expectations, behaviors, and risk frameworks. This structural transformation is happening faster than most realize, and it’s forcing every participant, including us, to adapt in real time.

Persistent Supply from Long-Term Holders: Over $50 billion in BTC has been distributed from previously dormant wallets in the past year, creating steady overhead supply - even in the face of strong ETF inflows and broader adoption.

Choppy, Range-Bound Price Action: With BTC and SOL stuck in narrow bands, many options-based strategies have underperformed temporarily due to a lack of realized movement.

Then in early July, BTC broke through ~110k and ran quickly to 118k, clearing major resistance levels in the process.

The breakout feels real. We’ve seen the return of directional follow-through and

momentum, driven by:

• Seasonality: July is historically a strong month for crypto.

• Macro Support: Rate expectations have softened, the dollar is weaker, and liquidity is improving.

• Sentiment Shift: Traders who were underexposed are now chasing, and long gamma flows are re-entering the market.

  
  

2. Positioning & Risk Management

Throughout Q2 and into July, we maintained a deliberate focus on positioning for a breakout while preserving flexibility.

Our current positioning reflects several strategic priorities:

• Options with Defined Risk and Convexity: We hold medium-dated call options across Layer 1s that provide targeted exposure with continued upside, while capping downside to the premium paid. This allows us to express directional views without compromising balance sheet flexibility.

• Elevated Cash Balance: We’ve taken profits on certain spot exposures and are holding elevated levels of cash to maintain optionality. This provides room to redeploy into new opportunities - whether on pullbacks, during consolidations, or into alternative structures.

• Selective Spot Trading: While our core directional exposure is via options, we remain opportunistic around short-term spot dislocations. This includes tactical entries during high-conviction pullbacks and exits when assets appear extended or momentum fades.

• Responsive Risk Management: In light of ongoing volatility shifts - driven in part by structured flows and covered call supply - we’re focused on trade structures that offer neutral or positive carry, tight risk parameters, and the ability to adjust quickly if the trend stalls or reverses.

  
  

3. Near-Term Roadmap

Our focus heading into the second half of July revolves around a few key scenarios:

• Trend Continuation: Should BTC extend its rally toward ~130k+, we may tactically monetize parts of our current options book and pivot toward carry-focused or re-entry strategies. Healthy Pullback: A dip toward ~113–115k BTC would be a welcome opportunity. We are positioned to redeploy via spot or structured put strategies to re-engage with favorable risk/reward.

• Event-Driven Catalysts:

  • Macro: While not our base case, the market is increasingly focused on the possibility of Jerome Powell stepping down.

  • Policy: The passage of the GENIUS Act and Congressional “crypto week” headlines are contributing to a constructive regulatory tone.

• Corporate Treasuries Are the New SPACs:

  • The emergence of public companies structured primarily to hold crypto has created a new source of demand - particularly for BTC and ETH. These vehicles are in vogue, with some trading at steep premiums under the premise of an “equity multiplier.”

  • We view these as short-term bullish for prices, but structurally flawed as long-term investments. They introduce unnecessary layers of management, custody, and fee drag - especially when the underlying assets can be held and staked directly. Over time, we believe these will revert to trading near NAV, not at the inflated multiples we see today.

    
    

Final Thoughts

The last two months tested our process and exposed the shifting mechanics of this maturing asset class. We took our wins and losses, adapted quickly, and are now positioned with both defense and offense in mind.

This is exactly what we were built for: to navigate periods of chop with discipline as crypto mainstreams and to be positioned when opportunity arises.

As always, we welcome your questions and look forward to the months ahead.