DAiM Issue 44 - February 2025 Recap - DAiM - Digital Asset Investment Management Firm

February Recap
Department of Government Efficiency
The Push for Lower Yields: What It Means for Investors
Crypto Chatter
Market Sentiment: Panic or Opportunity?

In November, excitement about the new presidential administration fueled optimism for crypto markets, pushing bitcoin past $100,000 by early December. Now that Trump’s second term is underway, the question is whether that optimism was justified. Early signs—like the possibility of a U.S. digital asset stockpile and a more crypto-friendly SEC—suggest the environment is becoming more favorable. However, the recent pullback has left many investors uneasy, especially with bitcoin falling further from the psychologically important $100,000 mark. While pullbacks in bull markets are normal, we’ll present data in Section 4 to support a more optimistic outlook. Additionally, this issue explores a few non-crypto policies from the new administration that could have a meaningful impact on digital asset prices.
First is The Department of Government Efficiency (DOGE)—a newly proposed initiative—that aims to reduce wasteful spending and streamline government operations. The idea is simple: a more efficient government costs less to run, and those savings could be passed on to citizens in two ways:Lower Taxes – If the government reduces spending, it may require less revenue, allowing for tax cuts. This means individuals and businesses could keep more of their earnings.Direct Payments ("DOGE Dividend") – Instead of tax cuts, the government could return savings directly to citizens in the form of stimulus payments.Would this impact digital asset prices? The answer depends on how these policies influence consumer behavior.Lower taxes increase disposable income, but that doesn't always translate into higher investment in digital assets. People might save more, work less, or spend on non-investment goods. Additionally, tax cuts don’t affect all income groups equally. Higher earners benefit more, while lower earners experience marginal savings that may not meaningfully alter their spending habits.
Direct stimulus, on the other hand, could have a more pronounced effect. If DOGE were to distribute a "government efficiency dividend," similar to the COVID-era stimulus checks, it could inject liquidity into markets. During the last crypto bull run, many retail investors used stimulus funds to buy digital assets, contributing to price surges. If a new stimulus program distributed $5,000 per person—more than double the average COVID check—it could trigger another wave of speculative investment.

While lower taxes create indirect and uneven economic effects, a direct "DOGE dividend" could provide a short-term boost to digital asset prices, similar to previous stimulus-driven market rallies. However, long-term impacts would depend on broader economic conditions, regulatory responses, and investor sentiment.
Another goal of this administration is to lower the yield on 10-year U.S. Treasuries to 2%. While this could benefit the broader U.S. economy, its effect on digital assets is less clear.A lower 10-year yield generally leads to lower yields across the board, making short-term instruments like T-bills more attractive since they offer similar returns without requiring long-term commitment. This could also strengthen the U.S. dollar, as investors shift toward cash and safer assets. A strong dollar benefits consumers by increasing purchasing power, but it can be less favorable for investors—especially in risk assets like bitcoin. Historically, digital assets have thrived in loose monetary conditions and struggled when the dollar strengthens, as bitcoin’s appeal as a hedge against currency debasement diminishes.Additionally, when yields are low and the dollar is strong, risk assets become less attractive. If investors can earn competitive returns in short-term instruments with minimal risk, there’s less incentive to hold long-term or volatile assets. This environment can benefit debt-financed assets like real estate due to lower borrowing costs, but crypto, which thrives in speculative environments, may not see the same upside.That said, these observations are largely based on traditional market behavior before digital assets became widely adopted. Bitcoin, in particular, has followed a distinct cyclical pattern driven by its halving events, where its price rallies and corrects largely independent of macroeconomic conditions. While interest rates and liquidity conditions do matter, bitcoin’s fixed supply of 21 million and increasing adoption remain the primary long-term drivers of value. The supply issuance slows every four years until it stops altogether in 2140, reinforcing its scarcity regardless of interest rate policy.Over time, the investment case for bitcoin has evolved. It has been viewed as an alternative store of value, an inflation hedge, a dollar replacement, a portfolio diversifier, a real estate alternative, and a high-performing scarce asset. While a stronger dollar may seem like a headwind for bitcoin’s price appreciation, the broader investment landscape continues to create new use cases. Bitcoin has repeatedly defied skeptics, and history suggests that those who invest ahead of these narratives tend to see the greatest returns.
For a while, it seemed like Bitcoin would never go below $80,000 again. But as we know, good times never last forever—especially in crypto. We believe the current sell-off is largely driven by institutional investors unwinding their arbitrage positions. They had bought spot Bitcoin or ETFs while selling CME Bitcoin futures at a higher price, earning a decent spread. However, as the spread narrowed, the strategy's profitability declined, making it less attractive. With the trade becoming less and less appealing, it is now beginning to unwind. That means traders have to sell the long side of the position—spot Bitcoin ETFs. You can see the recent flows here. We expect those looking to exit to do so quickly, if they haven’t already. Selling pressure from this trade should subside within the next few days.Another potential headwind is public bitcoin miners selling their bitcoin holdings. When the price rises rapidly, miners can generally fund operations solely through block rewards and hold the excess on their balance sheet. Once the price starts to plateau and then retreat, the newly mined bitcoin might not cover all of their needs. At that point, they will need to dip into their reserves. Each miner has a different breakeven level for bitcoin, and when the price heads down towards that, they need to explore raising cash so they can conservatively continue to run operations. It could nearing a time when some of them (especially the smaller public miners) dip into their bitcoin stash. However, we think a sell-off from these levels should be muted; there are plenty of market participants who would be eager to buy a dip from these levels.
Given what we just discussed, is it time to be greedy or fearful? One key indicator of crypto market sentiment is the Fear and Greed Index. As you might expect, the index signals greed when sentiment is high and fear when sentiment is low. But what does that mean for Bitcoin’s price? Historically, periods of extreme fear have been strong buying opportunities—just look at the chart below.

In August and September of last year, the index hit extreme fear, yet within two weeks, Bitcoin rebounded by at least 20%. After the September extreme fear reading of 22, it took just eight weeks for the post-election bull run to begin. The message is clear: when sentiment is deeply negative, it’s often an opportune time to buy—and history suggests you won’t have to wait long to see the benefits.

DAiM Issue 44 - February 2025 Recap

East Coast Office

West Coast Office

Detailed info

Company