Fundstrat's Sean Farrell On Bitcoin, ETH, and The Macro Case For Crypto In Every Portfolio

Sean Farrell, head of crypto strategy at Fundstrat, argues that bear markets are the right time to lock in opinions on long-term trends and near-term catalysts. He confirms the bear market is ongoing at the time of recording and places it at approximately the seventh-inning stretch or possibly later. He describes buying the majors now and selling a year from now at a higher price as a reasonably comfortable call, though he cautions that investors must assess whether they can tolerate another leg down potentially bringing Bitcoin to a four-handle before committing capital, and that select alts have already bounced 25 to 50 percent off absolute lows and warrant more patience.

The biggest driver of the bear market has been the divergence between the pace of liquidity growth and the pace of earnings growth. The absence of central bank balance sheet expansion tightened conditions for liquidity-sensitive assets like Bitcoin and ETH, and the real two-year yield reaching a new cycle high compounded that pressure. Equities reached new all-time highs because earnings grew at an impressive rate driven by AI capital expenditure, while the absence of excess liquidity removed the need for an excess liquidity sponge like Bitcoin and directed marginal capital toward productive earnings-generating assets instead. Idiosyncratic crypto-specific sell-side flows in the first half of the year included miner selling, long-term holder selling tied to the four-year cycle, digital asset treasury selling at or below one times net asset value, and significant redemptions from liquid crypto funds. Farrell also flags subpar capital markets decisions from Strategy, including mistakes in how and when it repurchased puttable bonds, as a tail risk that contributed to a spiral in the broader Strategy complex.

Farrell believes most of these liquidity headwinds and idiosyncratic risks are now behind crypto. He predicts the dynamic between liquidity and earnings will change over the next three to six months and that the second half of the year will be better than the first but will remain choppy. He argues that at some point there will be another bout of liquidity expansion driven by elevated debt to GDP, elevated fiscal deficits, and unfavorable labor force trends that make paying down debt structurally difficult, and that investors will need crypto assets as outlets when that occurs.

The launch of Bitcoin ETFs in 2024 was the first major step-function shift in how traditional finance clients engaged with crypto. The passage of the Genius Act and the Circle IPO represented the next step-function change, signaling a genuine rush toward stablecoin adoption and tokenization among traditional financial companies. Farrell estimates roughly 30 percent of traditional finance-only investors have since shown broader crypto interest beyond Bitcoin. He and Tom Lee both view ETH as a strong vehicle for gaining exposure to the secular mega trend of stablecoin adoption and tokenization, and Farrell predicts ETH will be one of the cleanest macro trades of the next cycle whenever that cycle turns.

On tokenization, Farrell has bucketed opportunities into businesses that source and monetize RWA flow, citing Hyperliquid, Robinhood, and Coinbase as examples, and businesses that leverage blockchain to improve their own margins and growth, citing Figure as an example that tokenized home equity locks on chain, reducing costs by 80 percent and speeding up underwriting by approximately five times. He doubled down on Hyperliquid in approximately February on the basis that RWA-based markets were comprising a significant share of its volumes, reducing its cyclicality, and notes that bulge bracket banks are looking to Hyperliquid pre-IPO markets ahead of listings their equity capital markets teams are bringing to market. Despite the secular importance of tokenization, Farrell maintains that the majors will still drive the majority of portfolio returns for crypto allocators over the intermediate timeframe.

On the regulatory front, Farrell estimates Trump made approximately one billion dollars from his meme coin and World Liberty Financial, which left a bad taste with many people, and says the current gating item blocking the Clarity Act is the ethics provisions around presidential conflict of interest. He says he is above a coin flip that Congress finds a compromise and the Clarity Act passes, but cautions that if it does not, political risk persists into the next administration and new agency leadership could roll back current rules.

Farrell observes that layer-one tokens have continued to accrue value across cycles while application-layer tokens have often sold off or failed to gain ground during bull runs. He argues that tokenization reduces cyclicality in DeFi protocols by bringing less cyclical assets such as equities and commodities on chain as collateral, which should create more robust price action in DeFi application tokens over time. He says very few crypto assets have outperformed Bitcoin over multiple cycles and describes the longer tail of crypto as carrying a call option characteristic relative to Bitcoin and ETH, but argues that both the majors and the longer tail deserve a spot in investor portfolios and that active management is warranted given how rare outperformance of Bitcoin has historically been.