Author: Stream Capital

Preface

In the first quarter of 2026, global financial markets entered their most severe risk repricing cycle since 2022. The continued escalation of geopolitical conflicts, the full-blown return of trade protectionism, and the fluctuating monetary policies of major economies collectively created a highly uncertain macroeconomic environment characterized by low liquidity. The crypto market suffered a systemic sell-off during this quarter, with Bitcoin plummeting from approximately $93,000 at the beginning of the year to the $63,000 range, a maximum drawdown of over 38%. The altcoin market was even more devastated, with many tokens falling 60%–80% from their cycle highs.

The deterioration of the market environment is not accidental, but rather the result of multiple structural pressures. On the one hand, the Trump administration's aggressive tariff policies and the US-Iran military conflict have pushed geopolitical risks to new highs, putting pressure on risk assets across the board. On the other hand, the crypto market's own narrative fatigue and the fragility of its liquidity structure have been fully exposed in the downward trend. Bitcoin's narrative as digital gold failed to deliver on its safe-haven function in the context of war, instead exhibiting the characteristics of a high-beta risk asset; altcoins, lacking new funds and fundamental support, have fallen into a continuous value regression.

At the same time, the rapid evolution of AI is profoundly reshaping the intersection of technology and finance. The continuous iteration of large-scale model capabilities, the explosive growth of open-source AI agent frameworks, and the initial integration of AI with Crypto payment scenarios provide noteworthy new variables for the industry's medium- and long-term development.

The following analysis will delve into the core variables of the first quarter from four dimensions: the macro environment, Bitcoin and capital structure, AI development trends and the differentiation of the altcoin market, and provide ArkStream Capital's framework for predicting future trends.

Macroeconomic Environment: Geopolitical Conflicts and Trade Wars Constitute Systemic Suppression

The fragmentation of the global trading system is accelerating.

The primary analytical framework for understanding first-quarter policy behavior is the US midterm elections in November 2026. The Republican Party's current slim majority in both the House and Senate faces a serious challenge; historically, the ruling party has almost inevitably lost seats in midterm elections. Under this pressure, the Trump administration's series of actions in the first quarter—including stringent tariffs, the Greenland sovereignty narrative, and military strikes against Iran—essentially serve the same political logic: consolidating the Republican base through aggressive foreign and economic policies and creating a narrative of a "strong president" in an election year. This means that, at least until the November vote, the unpredictability and aggressiveness of policy are unlikely to substantively cool down, and the political uncertainty premium faced by risk assets will persist throughout the year.

Projected distribution of seats in the House and Senate in the 2026 US midterm elections

https://polymarket.com/predictions/midterms

Driven by this political logic, the global trade order experienced its most severe shock since the establishment of the WTO in the first quarter. In mid-January, the Trump administration announced tiered tariffs of 10%–25% on eight countries—Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland—using the Greenland sovereignty dispute as leverage. At the end of January, a bill imposing 500% punitive tariffs on countries purchasing Russian oil (directly targeting BRICS countries such as China, India, and Brazil) gained bipartisan support and entered the voting process. On February 20, after the US Supreme Court rejected the legal basis for tariffs under the International Economic Partnership Agreement (IEEPA), Trump immediately invoked Section 122 of the Trade Act of 1974 to reimpose a 10% global provisional tariff (valid for 150 days).

The repeated escalations and changes in tariff policies impact the market from three dimensions: On the cost side, import tariffs directly drive up commodity prices and inflation expectations, limiting the Federal Reserve's room for interest rate cuts; on the supply chain side, retaliatory measures from trading partners exacerbate global supply chain uncertainty, suppressing companies' willingness to invest in capital; and on the risk premium side, the unpredictability of the policies themselves becomes the biggest pricing challenge, systematically increasing the implied volatility of various risky assets. ArkStream Capital believes that the latter two effects are far more difficult to quantify and fully price in the market than the tariff rates themselves.

📊 [Placeholder chart] Screenshots or maps related to news about the Greenland sovereignty dispute

https://truthsocial.com/@realDonaldTrump/posts/115925897257210763

The fundamental difference between this round of trade conflict and previous rounds of tariff negotiations lies in the fact that the conflict has expanded from bilateral to multilateral, and the repeated changes in the legal basis indicate that policymaking itself has deviated from an institutionalized track and entered a new stage of "immediate administrative power." The suppressive effect on risky assets far exceeds the direct economic impact of tariff rates themselves.

Tail risks of a US-Iran military conflict

On February 28, the United States and Israel launched a coordinated military strike against Iran, causing oil prices to jump within hours and global financial markets to enter risk-averse mode. With traditional markets closed for the weekend, the cryptocurrency market, as the only major asset class trading 24/7, bore the brunt of the risk-averse selling pressure. Bitcoin fell from $65,500 to $63,000 within an hour, and over $515 million in leveraged positions were liquidated.

This event once again confirms the fact that, under the current institutional participation structure, crypto assets play more of a "liquidity relief valve" role than a hedging tool during extreme risk events. When traditional markets are closed, the crypto market becomes the only operational risk release channel for global funds, and its price behavior reflects liquidity structure more than fundamental logic.

Crude oil price trend in Q1

https://www.tradingview.com/chart/WZsS9J3A/?symbol=NYMEX%3ACL1!

The impact of the shock extends far beyond prices. Within hours of the strikes, the Iranian leadership announced the closure of the Strait of Hormuz, one of the most vital arteries in the global oil shipping network, through which nearly 20% of the world's maritime oil trade passes. This massive tail risk superimposes the energy supply shock onto already high global inflation and directly impacts European and Asian economies heavily reliant on imported solar power. Even if a ceasefire is reached through negotiations within days, the pricing of the tail risk has not been fully eliminated. If the conflict escalates again, the market reaction could be far greater than the initial shock.

For the crypto market, this shock comes at the cost of two pressures: first, rising oil prices have pushed up inflation expectations, further limiting the Federal Reserve's room for interest rate cuts; second, investors' pre-market anxieties can only be released through the crypto market. Meanwhile, the uncertain future of the situation in Iran is also a key macroeconomic variable in the geopolitical risk signals for the second quarter. If the conflict escalates further under the political logic of a midterm election year, the suppression of risk assets will not be limited to a repeat of the first quarter.

Federal Reserve: The fluctuating path of interest rate cuts and the delay in the liquidity inflection point

From a macro perspective, BTC, as a peripheral market in the financial industry, has always been highly correlated with the Federal Reserve's interest rate policies.

Federal Reserve Interest Rates vs. Bitcoin Price (2022–2026)

Since 2022, there have been approximately four distinct cycles.

2022-2023: Interest Rate Hike Cycle → BTC Under Pressure

The Federal Reserve began aggressively raising interest rates in early 2022, from near zero to 5.5%. During the same period, Bitcoin (BTC) plummeted from approximately $47,000 to $16,000. High interest rates increased the opportunity cost of holding non-yielding, risky assets like BTC, leading to capital outflows.

Second half of 2023 - early 2024: Interest rate hikes pause → BTC bottoms out and rebounds.

While interest rates remained in the 5.25%-5.50% range, the market began pricing in expectations of rate cuts. The price of BTC rebounded from $16,000 to over $60,000. Meanwhile, in January 2024, the SEC approved 11 spot BTC ETFs, marking Bitcoin's official entry into the mainstream financial system.

September 2024 - October 2025: Interest rate cut cycle → BTC surge

The Federal Reserve first cut interest rates by 50 basis points in September 2024, followed by three more cuts, totaling 100 basis points within the year. Three more rate cuts were completed in 2025, resulting in a cumulative reduction of 1.75%. During this period, Bitcoin (BTC) surged from $66,000 to an all-time high of $128,198.

Late 2025 to present: Interest rate cuts paused + geopolitical conflicts → BTC correction

The Federal Reserve maintained interest rates at 3.50%-3.75% at its January and March 2026 meetings, citing rising oil prices and increased inflation expectations. Both PCE and core PCE forecasts were revised upwards to 2.7%. Coupled with heightened tensions in the Middle East, BTC has fallen from $126K to approximately $74K currently.

Current expectations of interest rate cuts

Interest rate cuts reduce the opportunity cost of holding BTC while increasing market liquidity, a phenomenon historically strongly correlated with BTC price increases. The Fed's dot plot projects one rate cut in 2026, which is not good news for BTC prices.

In the first quarter, the Federal Reserve's policy path underwent a gradual hawkish shift, with expectations of interest rate cuts gradually compressed from two at the beginning of the year to near zero.

dot matrix

https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

The FOMC meeting on January 28th kept the federal funds rate unchanged at 3.5%–3.75%, marking the first pause since three consecutive rate cuts in 2025. In his post-meeting statement, Powell reiterated that "more data is needed to confirm a sustained decline in inflation," a cautious but relatively neutral tone. However, the meeting minutes released on February 18th revealed a much deeper internal division than stated in the statement. The minutes showed that several officials explicitly mentioned the possibility of a rate hike, the first time such wording appeared in the minutes since 2023, and market confidence in rate cuts began to crack.

On January 30, Trump announced the nomination of former Federal Reserve Governor Kevin Warsh to succeed Jerome Powell as Chairman (the nomination was formally submitted to the Senate on March 4), with an expected inauguration in May. Warsh served as a Federal Reserve Governor from 2006 to 2011, and was one of the youngest and most hawkish members of the committee, having resigned in opposition to a second round of quantitative easing. Notably, his public statements have softened somewhat in recent years, arguing that AI-driven productivity gains have a structural deflationary effect, thus supporting lower interest rates. However, his most prominent label remains "balance sheet reduction over interest rate cuts." Warsh has repeatedly criticized the Fed for maintaining an excessively large balance sheet, blurring the lines between monetary and fiscal policy, advocating for a significant reduction in the balance sheet before considering interest rate cuts; even a slight decline in nominal interest rates could be offset by the tightening liquidity resulting from aggressive balance sheet reduction (some analysts estimate that reducing the balance sheet by approximately $1 trillion is equivalent to a 50 basis point interest rate hike). The market's interpretation of his nomination was generally hawkish, with some institutions viewing it as "an intriguing choice for a president who wants low interest rates." Following the nomination announcement, precious metals fell first (gold dropped 1.9% in a single week), the dollar strengthened, and the market began to reprice what a Fed chaired by this type would mean.

Entering February, the situation became further complicated. On February 28, the US and Israel launched a military strike against Iran (see Section 1.2 for details), causing oil prices to jump above $100 per barrel, completely altering the inflation game. Cost-based inflation driven by tariffs had not yet been digested, and the supply-side shock to energy prices compounded the situation, creating double inflationary pressure. The policy space for interest rate cuts was greatly compressed, and the market began to seriously discuss a previously absurd possibility: the next step would not be an interest rate cut, but an interest rate hike.

The FOMC meeting on March 18th put all of this into writing. The meeting maintained interest rates unchanged by a vote of 11:1 (compared to 10:2 in January, with Miran and Waller opposing; in March, Waller switched to favor, leaving only Miran opposing – a shift itself a noteworthy signal of hawkish convergence). The post-meeting statement specifically added the phrase "the impact of Middle East developments on the US economy remains uncertain," officially bringing the war factor into the Fed's decision-making framework. The updated Summary of Economic Projections (SEP) and dot plot released clear hawkish signals: the 2026 inflation forecast was revised upward to 2.7%, and the median dot plot maintained one rate cut this year (consistent with December, where Powell explicitly stated "the median has not changed"). However, 14 of the 19 members expected only 0–1 rate cuts this year, a clear hawkish shift in distribution; CME FedWatch showed the market has compressed its expectations for rate cuts this year from two at the beginning of the year to a maximum of one, with the possibility of zero rate cuts significantly increasing.

The unemployment rate forecast remained at 4.4%, and GDP growth was slightly revised upward, indicating an overall stagflation pattern characterized by resilient growth and sticky inflation. Bitcoin responded by falling from $74,000 to $70,900, with ETFs experiencing a net outflow of $129 million that day. Some market analysts pointed out that Warsh's first move after taking office might not be a rate cut, but rather a rate hike.

Looking back at the first quarter, the collapse of interest rate cut expectations was not an event, but a process. From the interest rate hike discussions emerging in the January minutes, to the hawkish personnel expectations brought about by Warsh's nomination, to the second wave of inflation caused by the Iran war, and then to the March dot plot compressing the year's interest rate cuts to one, the market's initial pricing of two interest rate cuts was peeled away layer by layer, and the "Higher for Longer" narrative once again took over. Previously, the market generally believed that "the interest rate inflection point has been established, and the liquidity inflection point is only a matter of time," but the evolution in the first quarter provided a more extreme answer. Not only is the liquidity inflection point still far away, but the interest rate inflection point itself is also at risk of being overturned. If Warsh's proposed combination of interest rate cuts and balance sheet reduction is implemented, it means that even if nominal interest rates decline, the actual liquidity environment may be tighter, and the suppressive effect on risk assets should not be underestimated.

Against this macroeconomic backdrop, global risk assets are under pressure across the board: the S&P 500 has fallen more than 5% year-to-date, with the Nasdaq experiencing an even larger decline; gold ETFs have attracted over $16 billion in funds; and Bitcoin ETFs saw a net outflow of $3.8 billion in February alone. The signal of funds migrating from digital gold to physical gold is extremely clear. ArkStream Capital will continue to monitor the evolution of interest rate cut expectations and geopolitical situations, as these are the core variables for judging the timing of subsequent liquidity inflection points.

Bitcoin and Funding Structures: Narrative Falsification, ETF Differentiation and Institutionalization

Stress test of digital gold

One of the most noteworthy structural changes in the first quarter was the significantly increased correlation between Bitcoin and the Nasdaq index during periods of stress. In market stress tests, Bitcoin not only failed to provide a hedging function but also exhibited a downward trend almost synchronously with tech stocks.

From a behavioral finance perspective, this is not surprising. Since the approval of ETFs, institutional investors have incorporated Bitcoin into the same risk budget framework as technology growth stocks. When macro risk appetite contracts, deleveraging and reducing positions are systemic and not differentiated based on asset class. This surge in correlation marks a new stage in Bitcoin's institutionalization process: it is evolving from a standalone alternative asset into a high-beta subset of global risk asset portfolios.

BTC vs Gold Q1 Price Trend Comparison

https://www.tradingview.com/chart/WZsS9J3A/?symbol=NYMEX%3ACL1!

The first quarter data thoroughly exposed the limitations of the digital gold narrative: gold exhibited two drastically different trends in the first quarter: it reached an all-time high of approximately $5,280 per ounce in early January, but with rising hawkish expectations from the Federal Reserve and increasing real interest rates, a significant pullback occurred in the latter half of Q1, with a maximum drawdown of nearly 20%; while Bitcoin fell by more than 20% throughout the quarter; between November 2025 and January 2026, Bitcoin ETFs saw a cumulative net outflow of approximately $6.18 billion, the longest continuous outflow period in history, while gold ETFs recorded a net inflow of over $16 billion during the same period. The signal of funds migrating from digital gold to physical gold is extremely clear.

The narrative of BTC as digital gold has become invalid. Through data comparison, we found that BTC is highly correlated with Nasdaq, but has a very low correlation with gold.

BTC vs Nasdaq/Gold Rolling Correlation (2020–2026)

Normalized Price Increase Comparison — BTC / Nasdaq / Gold (since 2022)

BTC vs Nasdaq: Highly correlated, but diverging.

Before 2020, the 60-day rolling correlation between BTC and Nasdaq was generally between -0.2 and 0.2, indicating almost no correlation. After the 2020 pandemic, the correlation jumped to around 0.5 and remained in the range of 0 to 0.6 for the next five years. In 2024, due to the launch of the BTC ETF and MicroStrategy's inclusion in the Nasdaq 100 index, the correlation surged to a historical high of 0.87. However, a major decoupling occurred at the end of 2025—BTC fell 27% from its peak, while Nasdaq only fell 2%, and the 20-day correlation coefficient dropped to -0.43.

There's also an asymmetrical pattern between BTC and Nasdaq: BTC doesn't necessarily rise when Nasdaq rises, but it almost always falls when Nasdaq falls.

BTC vs Gold: Correlation is almost zero

The highest historical 12-month rolling correlation between BTC and gold was only 0.41 (during the quantitative easing period), and has hovered around 0 since 2024. From November 2022 to November 2024, both rose in tandem (gold rose 67%, BTC rose nearly 400%), but they completely diverged at the beginning of 2025—gold rose 16%, while BTC fell 6%. This trend became even more pronounced in 2026, with gold surging to a record high of $5300, while BTC struggled around $74K.

In summary, BTC's fundamental identity is constantly shifting—it resembles a "highly leveraged tech stock" during bull markets, a "liquidity sponge" during panics, and rarely "digital gold." Data shows that BTC is actually a risky asset, not the safe-haven asset initially touted by crypto industry insiders.

Bitcoin ETF: Institutional Resilience and Vulnerability

A closer look at ETF data reveals a clear dual characteristic of "structural resilience + event-driven vulnerability" in the first quarter.

In the first quarter, Bitcoin ETFs saw a net inflow of approximately $1.87 billion (with significant net outflows in January and February, and some recovery in March). Single-quarter data for products like IBIT/FBTC are based on overall net inflows due to differing statistical methods. Assuming a total market holding of approximately 1.296 million BTC in mid-March at an average price of approximately $74,884, the cumulative AUM was approximately $97 billion. BlackRock IBIT held approximately 786,000 BTC, representing a market share of approximately 60% in BTC holdings, demonstrating a significant dominance.

Bitcoin ETF Monthly Net Inflow/Outflow

https://coinmarketcap.com/etf/

The inflow of funds exhibited a highly event-driven pattern in terms of timing: over $1 billion flowed in during the first two days of January, followed by an outflow of $1.128 billion within three days, almost erasing all gains; on January 29, a single-day outflow of $818 million marked the largest single-day outflow since November 2025; February saw a net outflow of $3.8 billion, the most severe monthly performance since the company's listing in January 2024; and on the day following the FOMC meeting in March, a $129 million outflow ended the previous seven-day streak of inflows.

The average cost for ETF holders is approximately $90,200. BTC experienced a continuous decline from around $88,000 in early January during the first quarter, reaching a low of around $63,000 after the impact of the Iran conflict at the end of February, before stabilizing in the $68,500–$69,000 range at the end of March. Based on the quarter-end price of around $69,000, ETF investors as a whole suffered a floating loss of approximately 23%, a cost inversion far exceeding market intuition. This cost inversion exacerbated selling pressure, creating a typical negative feedback loop: price decline → ETF redemptions → forced selling of spot holdings by funds → further price declines.

Structural changes are also noteworthy: the short-term correlation between inflows/outflows and prices is weakening, with more funds coming from systematic allocation rather than market timing, suggesting a maturing investor base; GBTC outflows have slowed significantly to $1.2 billion per quarter, with Grayscale's low-fee Mini Trust products beginning to absorb some of the existing funds. However, the core structural problem with ETFs is that their funds are almost 100% allocated to BTC, failing to create liquidity spillover to the altcoin market and instead further reinforcing BTC's siphon effect.

DAT: Failure of the reflexive flywheel

The DAT (Digital Asset Treasury) strategy rapidly spread from BTC to productive assets such as ETH and SOL in the second half of last year. Ethereum treasury companies like BMNR and SBET pushed the median mNAV of the sector above 1.2x. However, in the first quarter, this reflexive flywheel quickly failed when the prices of the underlying assets fell. According to Grayscale's 2026 outlook data, DAT holdings account for approximately 3.7% of the BTC supply, 4.6% of ETH, and 2.5% of SOL, a significant amount. However, the mNAV of the largest DAT companies has compressed from the peak range of 1.5–2.0x to close to 1.0x, with some small and medium-sized DATs even falling below 1.0x and entering a discounted trading state.

Strategy (MSTR) stock price and BTC price trend comparison

The landmark event marking the pressure on this round of DAT strategies was the sustained deep losses in Bitcoin after it fell below Strategy's cost basis in Q1. As the world's largest publicly traded Bitcoin treasury, Strategy held approximately 674,000 BTC at the beginning of the quarter and continued to increase its holdings throughout the first quarter, reaching approximately 762,000 BTC by March 24. According to SEC 8-K disclosure data, the weighted average cost basis at that time was approximately $75,694 per BTC (total cost approximately $57.69 billion). This means that Strategy's unrealized loss threshold was around $76,000 for Bitcoin. When Bitcoin fell from $88,000 in early January and broke below $76,000, Strategy had already entered a state of unrealized loss, rather than "only experiencing unrealized losses at the end of February" as some reports claimed. The low point of approximately $63,000 at the end of February meant that the depth of unrealized losses once approached 17%. This has strong symbolic significance in terms of market psychology: if even the most steadfast and largest institutional holders are already deeply trapped, the confidence of retail investors and small and medium-sized institutions becomes even more fragile.

Even more alarming is that Strategy's Bitcoin purchases are largely financed through convertible bonds and preferred stock. If the stock price remains depressed and the conversion conditions cannot be triggered, the pressure to repay the principal upon maturity may force the company to sell BTC on the secondary market, creating a death spiral of "price decline → financing difficulties → forced selling → further price decline".

However, in March, Strategy displayed a stance diametrically opposed to market panic, continuously and massively increasing its BTC holdings at low prices through its preferred stock instrument, STRC (Strife Preferred Stock), further averaging down its cost basis during the market panic. This action demonstrated the Saylor team's firm belief in the long-term value of Bitcoin and objectively provided some buying support to the market. But the other side of the coin is that continued accumulation further increased Strategy's leverage exposure and debt size. If Bitcoin prices continue to decline, the pressure on its balance sheet will amplify non-linearly, making Strategy both an anchor of market confidence and an amplifier of potential systemic risk. As of the end of the first quarter, although Strategy had not yet experienced any substantial passive selling, this tail risk had become a closely watched "gray rhino" in the market.

The compression of mNAV means that the positive cycle of DAT has been broken: In a bull market, the stock price premium allows companies to raise funds through share issuance to increase their holdings of crypto assets at a cost lower than NAV, forming a positive cycle of issuance → buying coins → NAV increase → stock price increase → further issuance. However, when mNAV falls below 1.0, continued issuance will dilute the equity of existing shareholders, close the financing window, and may even trigger passive selling under debt repayment pressure. Grayscale also clearly stated in its outlook that DAT is unlikely to become a significant marginal variable in the market in 2026.

Wall Street: Institutionalization process continues, but demand-side reforms are still needed.

Despite the weak market performance in the first quarter, Wall Street's institutionalization process has not stalled. Morgan Stanley submitted its first S-1 application for a Bitcoin ETF (ticker: MSBT) on January 6, followed by a second amendment on March 20. The NYSE subsequently issued an official listing notice on March 25, progressing significantly faster than market expectations. BlackRock's Bitcoin holdings account for approximately 60% of the market, with cumulative net inflows exceeding $63 billion, further strengthening its dominant position. Regarding XRP ETFs, seven spot products have been approved for listing between September and December 2025, with cumulative net inflows of approximately $1.44 billion. Institutions such as Goldman Sachs have already established positions through these products. On March 17, the SEC and CFTC jointly designated XRP as a digital commodity, further solidifying the regulatory foundation. Furthermore, IPO preparations for several crypto companies, including Anchorage Digital, OKX, Kraken, and Tether, are still underway, all listed as potential candidates for 2026.

The significance of institutionalization lies in the fact that it has established an increasingly robust compliant financial infrastructure layer for the crypto market. From ETFs (standardized allocation tools) to IPOs (industry equity pricing anchors) to DAT (demand-based asset and liability tranches), each channel is reducing the friction costs for traditional capital entering the crypto market. However, in the current macroeconomic environment, the supply-side development of these channels is far outpacing the demand-side willingness to invest. The release of institutional dividends will require a substantial improvement in risk appetite.

Bitcoin's long-term scarcity narrative and institutional infrastructure remain unshaken, but in the short term, it has clearly been priced by the market as a high-beta macro trading tool rather than a safe-haven asset independent of the traditional financial system. This cognitive restructuring will have a profound impact on asset allocation and risk management frameworks.

AI Development: Large Model Iteration and the Progress of Crypto+Ai

Large-scale AI model iteration: a continuous race

The iterative development of large-scale AI models over the past year can be described as rapid and ever-changing:

More noteworthy is the cost curve: API call prices have dropped by over 80% in the past year, indicating that AI penetration across industries has moved from the feasibility study stage to an economically driven phase. The economic barriers to large-scale deployment of downstream applications are disappearing, a pace exceeding the expectations of most industry participants.

Crypto+AI: Narrative-Focused

Over the past year, the AI industry has accelerated rapidly through leaps in model capabilities, an explosion of open-source frameworks, and a rapid decline in the cost curve, with technology and commercialization advancing almost simultaneously. In response to this wave, Crypto has also been exploring various avenues to leverage its strengths in AI: on the one hand, exploring application models through Agent platforms, DeFAI, and data layers; on the other hand, seeking verifiable demand and revenue loops through decentralized computing networks and payment protocols. Arkstream Capital has identified nine main directions, and the following will outline the progress and realities of these attempts.

Currently, within the entire Crypto+AI narrative, the segment with the most real revenue potential is the decentralized GPU computing network (DePIN × AI). Most other narratives remain largely speculative, failing to generate actual income. Project tokens are primarily driven by speculation, exhibiting a very pronounced hype cycle; once the hype ends, token prices plummet. The DePIN × AI segment, in particular, resembles a SaaS service, raising questions about the verifiability of its revenue data. Furthermore, major AI model companies haven't adopted DePIN computing power on a large scale, and from a long-term commercialization perspective, it doesn't offer a significant cost advantage compared to building its own computing power. The AI industry hasn't paid for Crypto+AI, and the Crypto industry tacitly accepts the fact that Crypto+AI is merely a temporary hype phenomenon.

The counterfeit market: Capital differentiation and continued adjustment

Overall market performance

In the first quarter, the altcoin market continued the weak trend that began in the fourth quarter of last year. BTC Dominance traded in the 56%–59% range, and the CMC Altcoin Season Index remained below 35 for an extended period (above 75 indicates an altcoin season), indicating the market was consistently in a "Bitcoin Season" state. According to CoinGecko data, the total global crypto market capitalization decreased by approximately 16.8% compared to a year ago, with this decline being significantly amplified among tokens outside the Top 10. Many altcoins fell by 60%–80% from their cyclical highs, and 38% of altcoins hit all-time lows. The Crypto Fear & Greed Index remained in the "extreme fear" zone for 46 consecutive days (as of the end of the quarter), hitting an all-time low of 5 on February 6th, lower than the 6 during the Terra/Luna crash, the 8 during COVID, and the 10 during the FTX crash, marking the absolute lowest level since the index was created.

Crypto Fear & Greed Index Trend

https://alternative.me/crypto/fear-and-greed-index

Market capitalization comparison chart of large altcoins/small altcoins/BTC - Tradingview

Large altcoins/BTC market capitalization exchange rate, small and medium altcoins/BTC market capitalization exchange rate

Thanks to ETFs, BTC's market capitalization reached a new high in 2025 compared to the bull market peak in 2021. However, the market capitalization of large altcoins (excluding stablecoins and BTC among the top 10 tokens by market capitalization) only slightly increased, while the market capitalization of smaller altcoins did not reach a new high. This is even more evident when looking at the market capitalization exchange rate of smaller altcoins to BTC. The peak of the altcoin market coincided with the peak of Crypto innovation. Driven by DeFi and NFTs, the altcoin market was once very prosperous, but it subsequently entered a long bear market cycle with only periodic hot spots. During this process, the supply of altcoins increased, and the overall market capitalization contraction of smaller altcoins, when translated into the market performance of individual altcoins, was even more severe. BTC's market capitalization reached a new high in 2025 mainly due to the approval of the BTC ETF and the injection of funds from Wall Street, which brought it into the mainstream asset market. Large altcoins slightly benefited from the spillover of funds from ETFs, but ETFs did not have a significant positive impact on smaller altcoins.

ArkStream Capital believes that the current predicament of the altcoin market is more structural than simply a cyclical adjustment. On the one hand, almost all new funding sources (ETFs, DAT) are locked in BTC and blue-chip assets, while small- and mid-cap cryptocurrencies cannot provide innovative value to attract capital inflows. Small- and mid-cap altcoins are becoming a gradually drying speculative market. "P-small" will become a representative term in 2025; how to achieve PvP in the secondary market while market attention remains is the main winning objective.

The AI stock market's siphon effect on Crypto

In the previous article, Arkstream Capital analyzed the continuous iteration of large-scale AI models and Crypto+AI's attempts in nine directions. We found that the AI industry has entered an economically driven phase.

AI has already become a fully-fledged industry with positive externalities. OpenAI currently boasts nearly 200 million daily active users. Total AI infrastructure spending is projected to reach $318 billion by 2025. Major companies have also engaged in an arms race, with the combined capital expenditures of Alphabet, Amazon, Meta, Microsoft, and Oracle increasing from $162.3 billion in 2022 to $448.3 billion in 2025. The large number of paying users and massive infrastructure investments provide a solid foundation for the development of the AI industry. Meanwhile, Crypto+AI remains in the narrative hype stage.

From an investment return perspective, the returns of AI-related stocks in the stock market in 2025 are expected to be far greater than those of AI tokens in the Crypto industry.

Statistical results show that in 2025, AI-related tokens in the Crypto market significantly underperformed the US stock market. The AI stock market has created a siphon effect on Crypto. Major Crypto CEXs such as Binance have also begun listing TradeFi assets.

Binance's Q1 List of Launches

After 2026, with the crypto market cooling down (Tokeninsight data shows that the total trading volume of the crypto market in Q1 2026 was $17.9 trillion, one-third less than Q4 2025, the lowest in recent quarters), more and more Crypto KOLs and retail investors are turning to the US stock market. The number of TradeFi assets listed on Binance has already surpassed that of Crypto assets. A significant increase in TradeFi asset trading volume is expected in Q2 2026.

For players in the cryptocurrency industry, a growing and more pressing issue is that the appeal of native cryptocurrency assets, whether viewed from a fundamental investment or speculative perspective, is declining compared to US stocks. This problem can only be resolved with the emergence of the next wave of cryptocurrency innovation. Until then, cryptocurrencies must accept the reality of being increasingly absorbed by the AI industry.

The Prisoner's Dilemma for Project Teams/Exchanges/Investors and the Application of Hedging Strategies

Without external funding inflows, and with AI continuously diverting funds, each newly listed cryptocurrency presents a new prisoner's dilemma.

Arkstream Capital compiled statistics on past VC investment projects listed on Binance (excluding projects with fair distribution like Meme). The price increase was compared to the closing price of TGE on the day of investment, with the price after 1 or 2 years. The data showed a widening trend of investment losses. The data for projects not listed on Binance was even more dismal. Currently, the industry commonly uses a 1-year cliff clause for VC investments, resulting in a significant devaluation of the tokens by the time VCs can claim them. Therefore, the appropriate use of hedging tools has become a necessary strategy for VCs.

A crucial change is largely overlooked in publicly available information. Compared to Web2 investments, the early-stage cryptocurrency industry had an advantage in terms of token release flexibility. Before 2021, a certain percentage of TGE (Trusted Tokens) was typically released, significantly reducing the investment pressure on venture capitalists (VCs) and allowing them to recoup some costs at launch. However, after 2022, to comply with Binance's listing rules, most cryptocurrency projects adopted 1+3/1+4 unlocking clauses for private placements. Binance designed this to make the project's chart look better after listing, reducing selling pressure. For project teams, this allowed them to allocate tokens for sale on exchanges under the guise of ecosystem/market capitalization management. For retail investors, who have always viewed VCs as counterparties, any restrictions on VCs were welcomed. Nevertheless, within this ecosystem, the optimal solution for project teams was to leverage liquidity and hype to secure funding within the first month after launch, even as the chart trend remained downward, especially during a bear market. This makes venture capital (VC) a perpetual underdog in the entire Prisoner's Dilemma ecosystem. This is especially true when crypto lacks innovation and is being siphoned off by funding from the AI industry. Primary market investment in crypto is extremely difficult. Therefore, Arkstream Capital essentially ceased primary market investment by 2025.

A harsh reality is that if most projects don't hedge in advance, it's essentially equivalent to accepting investment losses.

From the exit perspective, the gap between the book returns of VC investments and the actual exitable returns is widening. In an environment of continued liquidity contraction, the reliability of the traditional "investment-waiting for listing-secondary exit" path is declining. ArkStream Capital observes that exiting pure primary investments is becoming increasingly difficult, highlighting the relative advantage of OTC strategies in the pre-primary market.

Based on the above observations, ArkStream Capital believes that the altcoin market correction is likely to continue in the current environment of tightening liquidity, unabated new token supply, and weakening market narrative momentum. From a trading strategy perspective, shorting small-cap altcoins may be one of the few hedging methods with positive expected value. The upward trend of BTC Dominance indicates that the migration of funds from altcoins to Bitcoin is still underway, and the widespread post-listing price drops also provide ample targets for short sellers.

Of course, shorting altcoins also carries tail risks. Any unexpected positive macroeconomic developments (such as accelerated interest rate cuts or geopolitical easing) or industry-level liquidity injections (such as the approval of new ETF categories) could trigger a sharp short squeeze. Therefore, strict position management and stop-loss discipline are essential. Overall, ArkStream Capital is cautious about the altcoin market's performance in the second quarter and recommends maintaining a defensive allocation in this sector.

In conclusion: The pressure is far from over.

ArkStream Capital's baseline assessment for the second quarter and the second half of the year is conservative. The structural contradictions exposed in the first quarter—the sticky inflation resulting from the combination of tariffs and war, the policy mix of balance sheet reduction and maintaining high interest rates under Walsh's leadership, and the vicious cycle of oversupply and capital depletion in the counterfeit market—none of which are likely to be substantially reversed in the short term.

The liquidity inflection point is likely to be further delayed. Under the dual inflationary pressures of tariffs and energy prices, the possibility of the CPI falling below 2.5% in the second quarter is extremely low, and zero interest rate cuts or even rate hikes throughout the year remain a scenario that needs serious consideration. Geopolitically, there is also a lack of basis for easing tensions. Even if the US-Iran conflict subsides in the short term, the political logic of a midterm election year dictates that the Trump administration will not abandon its aggressive stance. New geopolitical or trade shocks could emerge at any time, and the unpredictability and aggressiveness of policies before the November election are unlikely to cool down substantially. Systemic suppression of risk appetite will be the norm, not the exception.

The shakeout in the altcoin market is far from over. The peak of token unlocking will continue throughout the second and third quarters, and in an environment lacking new funds, the selling pressure on small and mid-cap tokens will only intensify rather than ease. Two marginal variables on which the market pins its hopes—the expansion of ETF categories and the productization of AI × Crypto—are unlikely to materialize in the short term: the timeline for new product approvals remains unclear, and AI Agent payment scenarios are still in the proof-of-concept stage; the probability of either contributing to substantial improvement is low.

Based on the above assessment, ArkStream Capital will primarily adopt a defensive allocation strategy, controlling overall position size and leverage exposure, focusing on exits from existing investments and safe position management, and avoiding chasing rebound signals that have not yet materialized. At this stage, protecting existing positions and conserving resources is a higher priority than speculating on a rebound.

对冲基金公司D.E. Shaw于Q2增持价值超1.7亿美元的比特币现货ETF

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