Time to get radical?

As the world becomes ever more unpredictable, it may be time to upend the old ways of investing. In that spirit, today’s newsletter looks at a method of portfolio construction that’s more in keeping with the mood of the times.

Meanwhile, we also take a look at what to expect from the coming week, as geopolitical uncertainty continues to rage and volatility looms large on the menu. Can crypto finally catch a break, or will it be first in line for more sell-offs?

💳 Crypto cards set to boom? 💳

The big banks have been making obscene profits from credit cards for years and, believe it or not, but your spending may be financing the rewards that other consumers are enjoying. The credit card sector is rotten to the core, but could be due for a crypto-powered shake-up.

As Donald Trump mulls putting limits on how much interest credit card issuers can charge, evolving crypto regulations mean rewards for cardholders might be set to increase as a result of DeFi lending and token incentives. In short, it looks like a gap in the market may soon be opening up that crypto could fill. And, if it does, then mass adoption beckons.

In today’s video, we break down the current credit card landscape and outline the changes that lie ahead. We disclose how crypto can step into the breach and of course, reveal some of the projects that could be set to benefit the most from this seismic shift.

You can watch that video here.

📈 Crypto Market Forecast 📈

The rotation into small-cap stocks has accelerated to the point that it’s all over social media. On the one hand, this suggests that a pullback in small-cap stocks is imminent. On the other hand, momentum begets momentum; the trend is your friend until the end. Unfortunately, the crypto market has yet to receive any significant amount of liquidity flowing further out along the risk curve.

On the contrary, there’s been a surge of outflows from crypto ETFs, suggesting that the crypto market, and particularly Bitcoin, is more highly correlated to large-cap indices than small-cap indices. Fortunately, there have been countertrend rallies from altcoins in select niches over the last few weeks, most notably privacy coins. More recently, there’s been a resurgence in GameFi cryptos.

This suggests that some speculative activity may be finding its way into crypto, but it’s very sector-specific and rotational. This shouldn’t be surprising given this has arguably been the case since the crypto market started recovering in late 2023. This begs the question of which crypto sectors will be the next ones to experience a surge, given the GameFi one is likely close to over.

The answer could be stablecoins and tokenization. This is because many cryptos in these niches have recently bottomed and are starting to show signs of strength, including Stable, Plasma, and Canton Network. The catalyst for a breakout could be the markup of the CLARITY Act by the Senate Agriculture Committee this upcoming Tuesday.

The timing of the markup is prescient given that the Fed’s next interest rate decision will take place the following day. Futures markets are currently pricing in no change to Fed interest rates, and it’s generally assumed that the central bank will be more hawkish due to the Trump administration recently targeting its chairman Jerome Powell. This could set the stage for a dovish surprise.

Conversely, sticky inflation and a supposedly robust economy could result in even more hawkishness from the Fed. This is especially likely given that the public is coming to understand that the Trump administration’s strategy for the 2026 midterms is to ‘run it hot’ - to try and boost the economy as much as possible, which is likely to cause inflation to rise if Trump succeeds.

Higher inflation would mean higher bond yields, and higher interest rates by extension. Given that crypto is sensitive to rising rates, this could further suppress crypto prices. The caveat is that small cap stocks are similarly sensitive to interest rates, and yet they’ve had no issues rallying. This means that the Fed’s next meeting may only result in short-term volatility.

At the same time, there’s another macro factor that could boost liquidity in the markets, and that’s tax refunds, with tax filings starting tomorrow. It’s estimated that the tax cuts introduced by last year’s Big Beautiful Bill will result in the average taxpayer receiving around $1,000 extra. This is roughly the same value as the first round of pandemic stimulus checks.

Meanwhile, Trump has been proclaiming that he plans on issuing actual stimulus checks worth $2,000 - something he claims can be done without congressional approval. The catch is that this money would come from tariff revenues, which may need to be refunded if the Supreme Court strikes down Trump’s tariffs, something that Trump is reportedly concerned could happen.

There’s just one very important thing to keep in mind, and that’s that the midterm primaries
begin in March. This means that there’s only a few weeks left for the Trump administration to push through any policies that could be seen as problematic by voters. This is presumably why the takeover of Venezuela and the proposed takeover of Greenland happened so quickly.

It also explains why Trump pivoted away from taking over Greenland last week, and it could even explain why his administration seems to be pivoting towards putting more pressure on Iran. If there’s going to be an escalation in the Middle East, it’s likely to happen sooner than later so that it can be resolved before March. This could put pressure on the markets, particularly crypto.

In sum, it looks like next week is going to be volatile for the crypto market, with downside risks appearing high. For what it’s worth, the catalysts that could push prices lower (such as the Fed) could turn out to be bullish, and macro tailwinds like tax refunds could help support the markets. Regarding geopolitical escalation, it’s worth remembering the meme: nothing ever happens.

🤯 Radical Portfolio Theory 🤯

Modern Portfolio Theory (MPT), the investment philosophy proposed by Harry Markowitz in 1952, has been widely regarded by institutions and investors as the gold standard of investment strategies worldwide. For those unfamiliar, the Modern Portfolio Theory is a portfolio construction framework that prioritises minimising risk and maximising returns through the diversification of an investor’s wealth across assets that have negative or low-positive correlation.

In fact, the widely recommended 60-40 portfolio split in traditional markets (60% equities and 40% bonds) is a practical application of MPT's core principles. It uses the historic negative or low-positive correlation between bonds and stocks to provide investors with optimised, risk-adjusted returns.

In simple terms, at least one of the assets in the 60-40 portfolio is expected to perform well no matter what happens in the world economy. Functionally, it uses bonds as a hedge during market downturns while maximising returns during periods of market growth through its relatively higher allocation to equities.

However, over the past few years, an increasing number of investors have begun to doubt the effectiveness of the MPT. After all, the world has changed quite a bit since it was proposed in 1952. For one thing, the global financial system is a lot more interconnected compared to 70 years ago. More liquidity sources mean the correlation between risk-on and risk-off assets can be distorted.

In fact, recent research shows that the correlation between stocks and bonds has become increasingly positive in recent years – an effect that has become more visible since the 2020 pandemic caused pronounced uncertainty relating to inflation. While recent global economic data suggests inflation is beginning to recede, it remains higher than most central bank targets. In other words, a strict implementation of the MPT is currently incapable of constructing a truly diversified risk-adjusted portfolio.

So, how does the modern-day investor best position themselves in this scenario?

Well, Bitwise’s Head of Alpha Strategies Jeff Park advocates for investors to adopt a new philosophy called the Radical Portfolio Theory (RPT). Park’s RPT builds on the fundamental principles of the MPT while modifying its core assumptions to reflect the current state of the global financial system. Like the MPT, the RPT believes multi-asset portfolios of two or more uncorrelated assets offer the best risk-adjusted returns for investors.

However, it redefines ‘risk’ to include systemic threats such as a sovereign debt crisis. As some of you may know, one of the fundamental flaws with MPT is its inability to position against systemic risks. In fact, many currently anticipate that we might be heading towards an extended period of heightened global economic instability. While there are several contributing factors cited, the consensus is that the two biggest contributors to this crisis are likely to be Japan's bond market collapse and the erosion in confidence around US economic policy and dollar strength (led by concerns around eroding Federal Reserve independence and aggressive US geopolitical actions).

For context, US treasuries (aka government debt) make the foundation of the current global financial system. Many of the US’s trade partners hoard dollars and bonds due to scarcity-driven demand and the USD’s relevance as the world's reserve currency. This means interest rates are not actually a function of a domestic policy and the conditions of the US economy itself, but more a function of global forces manipulating liquidity (the so-called Triffin Dilemma).

In the context of recent events, global confidence in the dollar has begun wavering as the US aggressively initiates unilateral foreign policy that has shattered traditional alliances and trade relationships. The recent scuffle between the US and other NATO member countries over Greenland is the latest entry in this diary of distrust.

Likewise, the recent escalation in the internal war between the Trump administration and the Federal Reserve has created uncertainty over whether monetary policy in the US will be "directed by political pressure or intimidation" rather than economic evidence. Specifically, the Department of Justice recently launched a criminal probe into Federal Reserve chair Jerome Powell, which Powell characterised as "politically motivated pressure" aimed at undermining Fed independence. These developments represent a fundamental shift away from the post-WWII international order toward a more fragmented, volatile global system.

Jeff Park’s RPT seeks to address this risk by expanding portfolio diversification to include assets that act as a hedge against broader economic instability. Specifically, it recommends investors modify their 60-40 portfolio to focus on a 60% allocation to ‘compliance’ assets and a 40% allocation to ‘resistance’ assets.

For context, “compliance” assets refer to assets that are integrated into mainstream financial systems (e.g., stocks, bonds, and real estate), while “resistance” assets refers to assets that are decentralised, scarce, and timeless (e.g., physical gold, decentralised crypto, art in tax-free freeports, and anonymous offshore shelters).

Park places special emphasis on the form, not the subject, of the asset being the qualifying identifier for whether it falls within the compliance or resistance category. For instance, he notes that investments in Gold ETFs fall within compliance, while investments in physical gold bars fall within resistance.

Case in point, hard assets such as gold and silver have been some of the best performers recently. They have been breaking new all-time highs in price week after week as global trade pressures mount in the wake of Trump’s tariff drama from last year.

The MPT’s core principles unequivocally assume the US would remain credit-worthy and that market growth is a function of productivity. Park’s RPT challenges this assumption as a way to better hedge investor portfolios in a hyper-financialised world where “the market is no longer a function of the economy, but the economy is the function of the market.”

While the nuances of the Radical Portfolio Theory run a little deeper, for the purposes of introducing our readers to a fascinating alternative investment approach, this should suffice. If you’d like to learn more, we highly recommend reading Park’s substack on the RPT.

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📖 Quote of the Week 📖

Right now, it seems that Bitcoin is the contrarian bet, which means “max pain” could be near.

“If you are not willing to risk the unusual, you will have to settle for the ordinary.” - Jim Rohn

Team Coin Bureau

Disclosure: Authors may own cryptoassets named in this newsletter. These are unqualified opinions, and a Coin Bureau newsletter, is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor.