Source: The DeFi Report; Author: Michael Nadeau; Compiler: BitpushNews Cody Feng
Foreword
We have been closely watching Bitcoin's key support areas to decide whether to exit the market (expecting further declines) or to redeploy funds more aggressively across the risk curve in preparation for a possible surge/"alt season" later this year.
In this week's report, we will look at how to think about managing risk amid an improved outlook for tariffs and market sentiment.

Macro perspective
1. Tariffs
We initially thought that the Trump administration would maintain a tough stance on China in negotiations with other countries. This judgment seemed correct when Trump increased tariffs all the way to 145%. But such a high tax rate actually built an unsustainable trade barrier between the two major economies of China and the United States.
The current situation has entered a 90-day truce, and the upper limit of tariffs on China is locked at 30%. The market has responded enthusiastically, but it is still important to be aware that the current global average tariff rate is still as high as 17.8%, while it was only 2.5% at the beginning of Trump's term.
2. Looking Ahead
It is futile to try to predict the direction of short-term tariffs. But traders who followed Trump's "buy high, sell low" instructions in the past few months have indeed made a lot of money. To be clear, this is by no means our long-term investment philosophy (we always want to return to the long-term perspective), but at the end of the cycle, it is necessary to pay appropriate attention to short-term fluctuations.
From a longer-term perspective, we are doing our best to look at the overall situation:
It is impossible for the tariff rate to return to the 2.5% era
The essence of the tariff policy is the dual demands of rebalancing the power of China and the United States (power game) and pleasing their base (manufacturing return)
3. Economic recession
Before the tariff truce, a number of soft data indicators had sounded the alarm:
The ISM manufacturing index fell to 48.7 (contraction range) in April, and the service industry index rebounded to 51.7 (expansion);
The ISM manufacturing index fell to 48.7 (contraction range) in April, and the service industry index rebounded to 51.7 (expansion);
The ISM manufacturing index fell to 48.7 (contraction range) in April, and the service industry index rebounded to 51.7 (expansion);
The ISM manufacturing index fell to 48.7 (contraction range) in April, and the service industry index rebounded to 51.7 (expansion);
left;">Michigan Consumer Confidence Index in April was 52.2, well below the long-term average of 85 (71 during the peak of the COVID-19 pandemic);
The same survey showed that one-year inflation expectations climbed to 6.5% (same as above, University of Michigan survey);
According to the Challenger Report in March, the number of announced layoffs has risen to the level of the Great Recession. The number of layoffs declined in April, but was still 63% higher than last year;
Data from the Port of Los Angeles showed a 30% decrease in cargo volume from China, and the impact is expected to appear in May and June;

Under multiple pressures, the Polymarket forecasting platform gave a recession probability of 66% on May 1 (now falling back to 40%).
Our view is that soft data will eventually show up in hard data (actual data), and hard data continues to show that the economy is still strong.
Now, with the 90-day suspension of China tariffs, we think near-term recession fears have receded.
The question is how long the wall of worry can be built before a new round of negative news undermines expectations.
Maybe it could happen tomorrow. No one knows, so this is more of a trader's market.
That being said, it seems we still have some room to take risks, and capital allocators may have to chase the market in this case.
Crypto Markets
As the most liquidity-sensitive asset class, the recovery in risk appetite in crypto markets has been particularly significant.
The cryptocurrency market seems to have sniffed out this fact:
Fiscal spending has not decreased, as the US government's spending is still over 7% of GDP.
The government and corporate debt refinancing wall will appear in the third quarter to the fourth quarter ($3.5 trillion to $4 trillion).
Tax cuts, deregulation, and adjustments to the supplementary leverage ratio (SLR) may be implemented later this year (which may increase leverage/liquidity in the banking industry)
This week's CPI/PPI showed a slowdown in inflation, giving the Fed a green light to cut interest rates
These factors together point to the prospect of easing liquidity - the Fed may need to buy some of the newly issued debt.
To sum up, even if the Fed is currently standing aside, the chances of a “alt season” are increasing.
We have observed that for the first time since the fourth quarter of last year, altcoins and MEME coins have seen a sustained rise, and the Bitcoin market share index (BTC.D) may have peaked.

Alt Season
If the "Alt Season" is truly launched, the index still has huge room for decline, which means that (selected) altcoins will start to generate excess returns.
But what factors do we need to look for to confirm the "alt season":
Last year's cycle performance
BTC market share is in the 65-70% range
Quantitative tightening (QT) turns to quantitative easing (QE)
ETH/BTC exchange rate rises
Revival of retail enthusiasm and speculative sentiment
It should be clear that we are still in the early stages of this process. In US dollars, the price of ETH/BTC is still 0.024, and ETH is trading 46% lower than its historical high. The Fed is still conducting quantitative easing (QT).
Nevertheless, ETH’s 35% gain last week is reminiscent of the 68% gain between January 1 and July 1, 2021 (from $729 to $1,224).
Back then, the ETH/BTC ratio was 0.03. Just four months later, it was at 0.07, and ETH/USD was up 370%.
This sparked a market-wide frenzy for altcoins, NFTs, metaverse tokens, and alt-first-layer public chains. There was little correction from January to May 2021. The market then experienced a major sell-off until mid-July (ETH fell from $4,000 to $1,800), before bouncing back to hit a record high in November.
Before the house of cards finally collapsed, some altcoins (such as Terra Luna) continued to rebound, far exceeding the peaks of BTC and ETH.
This is what happened in the last round.
So, how do we deal with the current situation?
Portfolio Management
We are very happy to have locked profits on long-term holdings in December/January. Since then, we have been watching the market and waiting for the market to signal that it will either break down into a bear market or rebound into another blowout top.
We are leaning towards the latter now.
But this does not mean that we are all in.
As many of you know, our style is to wait for the "big drop".
We don’t consider today’s move to be a “high.” But we also think there is some upside risk here.
So, here’s what we do:
At this price, we are not interested in BTC.
Instead, we take a small portion of profit further down the risk curve.
According to past experience, the two types of coins that rise the most at the end of a bull market are often: one is the ‘old leader’ that has performed very well in the first half of the year, and the other is the ‘new internet celebrity’ that has just emerged. We think assets such as SUI/TIA//HYPE/VIRTUALS will perform well. Tokens with strong communities/narratives and low circulation may see the biggest fluctuations.
DeFi projects with strong fundamentals will also perform well. For example, Pendle, Aerodrome, Maple and Raydium.
We also hope to see strong performance from top "blue chip" memes. We are bullish on SPX6900, GIGA, BONK and PEPE. These are the assets we focus on.
Here is an example of how we analyze memes using Bonk as an entry point:

As we can see here, if you have a constructive view on Solana in 23 years, it can be said that the best way to express it is through Bonk, the cultural currency of the ecosystem.
From mid-2023 to today, BONK has a 1-week beta of 1.53 relative to SOL. The 1-month beta is 4.94. The 3-month beta is 17.65.
What does this mean? BONK is very sensitive to the price action of SOL. In other words, the risk/reward of holding BONK for the long term is very high compared to SOL.

In terms of momentum, BONK recently reclaimed its 90-day moving average, after having been trading below it for the past 4 months.
We tend to buy the asset when the RSI approaches 30 (oversold). BONK is currently trading at overbought levels, which suggests that a pullback could be in the cards after the recent rally.

is used as a reference indicator of the "holding cost" of token holders. For BONK, this value is currently 1.02, which means that the average holder is currently in a break-even state. As shown in the chart above, this value was close to 6 times in the fourth quarter of 2023, and close to 3 times in the fourth quarter of last year.

We can see that BONK has nearly 1 million wallets holding the token. The team has conducted multiple "airdrops", which is why there are so many token holders (and why such a large proportion of token holders hold less than $1,000 in tokens).
With this in mind, we like to look at whale retention (how much of their holdings are retained by large investors after market volatility) by analyzing wallets holding more than $100,000, which still hold more than 50% of their peak holdings (this removes the noise from price fluctuations).
BONK has a whale retention rate of 28.5%. This is one of the highest levels observed.
Risks
I want to be clear that we are not fully invested right now. We just want to be prepared to catch some upside opportunities if the market rebounds significantly.
That said, there are still many risks to consider:
BTC needs to break out of its all-time high. If this does not happen, our view may be irrelevant.
Summers tend to be choppy/consolidation periods. Sentiment here is a bit extreme, so we could see another wave of declines similar to last year.
Bond markets. We think long-term yields will eventually move higher. Stocks (and crypto) could rally during this period. But valuations are ultimately a product of DCF calculations, so if this happens, stocks (and crypto) will eventually correct.
Last week, legislation on stablecoins failed to pass the Senate (Democrats are still blocking crypto-related legislation). This is a big deal, but crypto markets seem to have a muted reaction to it. If this legislation fails to pass, the broader crypto bill could also hit a snag, creating headwinds for the entire asset class.
Conclusion
“Alt Season” refers to the period in the crypto space where more than 50% of every new dollar inflow goes to non-BTC assets. This doesn't mean all altcoins will outperform.
Asset selection and timing are key.
Please understand that there are many risks at play in addition to market risk. Yesterday, we learned that Coinbase's user data was recently exploited. Hacking, hidden leverage, and social engineering scams all create additional risks for crypto investors, especially when prices are rising.
We believe that there will be an opportunity in the not-too-distant future to buy BTC and other blue-chip assets at a discount.
But we also want to have some fun and try to capture any upside that may exist in the current cycle.
That's all.
Stay curious.