Monthly Letters
Dear Investor,
May proved to be a respite from the tariff turmoil that dominated April, with markets responding favorably to an end-of-month court ruling that the President’s tariffs exceeded his authority.
The Nasdaq Crypto IndexTM (NCITM) rose 12.9% for the month, outperforming the S&P 500 (6.2%) and Nasdaq-100 (10.4%), highlighting crypto's potential to serve as a hedge against macro and policy uncertainties.
The performance dispersion of the NCITM constituents year to date is a sign that investors can benefit from exposure to a broad set of crypto assets. Bitcoin experienced a double-digit return while other assets experienced double-digit losses. However, the NCITM, which follows a market-cap indexing approach, has delivered positive returns for the month.
As always, we are greatly appreciative of your trust in us and are here to answer any questions you may have.
-Your Partners at Hashdex
Market Review
May delivered another twist in the tariff saga that has dominated markets since March. On May 28, the US Court of International Trade dealt a stunning blow to the Trump administration's trade agenda, ruling that the president exceeded his constitutional authority in imposing the sweeping "Liberation Day" tariffs. The three-judge panel's unanimous decision triggered immediate market euphoria, though an appeals court granted a temporary stay the following day, leaving the ultimate outcome uncertain.
Despite the legal whiplash, crypto assets posted their strongest monthly performance of the year. The Nasdaq Crypto IndexTM (NCITM) surged 12.87%, outpacing traditional indices by a good margin—the S&P 500 gained 6.2% while the Nasdaq-100 rose 10.4%. This outperformance underscored crypto's evolution from a high-beta tech proxy to a potential hedge against policy uncertainty and dollar weakness.
The court's ruling that Congress, not the President, holds exclusive authority over trade policy sent the dollar tumbling 3% (as represented by the Dollar Index) for the month, its worst performance since 2023. Bitcoin briefly touched an all-time high above $112,000 as investors sought alternatives to traditional safe havens. Ethereum emerged as May's standout performer with a remarkable 41.91% gain, benefiting from renewed institutional interest, anticipation of reduced regulatory uncertainty, and the increasing probability of the Stablecoin Act being approved later in the Summer.
Thematic indices continued their April momentum, all posting double-digit returns. The Decentralized Finance (DEFI) index led with 18.67%, followed by the Smart Contract Platform (WEB3) index at 9.46%. The Kaiko Hashdex Risk Parity Momentum (HAMO) index delivered 7.53%, while the Digital Culture (META) index gained 4.03%, reflecting broad-based strength across crypto sectors.
Market cap-weighted indices as a shield against single-asset volatility
May's performance dispersion highlights a crucial lesson for crypto investors: picking individual winners is extraordinarily difficult in volatile markets. While Ethereum soared 41.91% in May alone, its year-to-date performance remained deeply negative. This whipsaw action—from -23.95% YTD despite a spectacular monthly gain—demonstrates why market capitalization-weighted indices like the NCITM can potentially offer superior risk-adjusted returns. Consider the year-to-date performance through May 31:
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NCI: +3.72% (steady progress despite volatility)
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Bitcoin: +12.12% (anchoring the index with positive returns)
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Ethereum: -23.95% (steep losses despite May's 41.91% surge)
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Solana: -18.80% (continued underperformance)
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XRP: +4.64% (modest but positive gains)
The stark contrast reveals the power of market-cap indexing: while individual assets swung wildly between deep losses and spectacular gains, the NCITM delivered steady positive returns. Investors attempting to navigate these extremes faced impossible timing decisions—should they have sold Ethereum during its -30% drawdown? Should they chase May's 41.91% rally? The NCITM eliminated these dilemmas entirely, automatically maintaining optimal exposure through market-driven weightings. No predictions, no timing, no regrets—just systematic participation in crypto's long-term growth trajectory.
The mathematics of diversification
Market cap weighting naturally tilts toward larger, more stable assets while maintaining measured exposure to volatile opportunities. The NCI's heavy Bitcoin allocation (77.46% weight) provided ballast during turbulent months, while its Ethereum position (10.81% weight) captured May's explosive rally without overexposing the index to earlier losses. This systematic approach—rebalancing automatically as market values shift—is the hidden genius of cap-weighted indices.
During the five-month period of tariff uncertainty, individual asset correlations broke down repeatedly. Assets that moved together in March diverged sharply in May. The NCI's diversification across multiple protocols, use cases, and market segments provided a smoother ride through these regime changes than any single asset could offer.
Looking ahead
The legal challenge to executive trade authority may take months to resolve, ensuring continued market volatility. South Korea's central bank cut rates to 2.5% and slashed growth forecasts, while geopolitical tensions from the India-Pakistan conflict to the ongoing Russia-Ukraine war add layers of uncertainty. In this environment, the disciplined approach of market cap-weighted exposure becomes even more valuable.
As institutional adoption accelerates and crypto market structure matures, we expect index investing to follow the same path as traditional markets—where cap-weighted indices now dominate asset allocation decisions. The NCITM offers investors a simple truth: you don't need to predict which crypto will shine brightest when you own the market's collective wisdom.
May's results reinforce our conviction that systematic, diversified exposure to crypto markets through indices like the NCITM represents the optimal approach for long-term wealth creation in this transformative asset class.
Top Stories
US banks explore joint stablecoin venture
JPMorgan, Bank of America, Citigroup, and Wells Fargo, are reportedly in discussions to form a consortium to launch a stablecoin. This supports a significant shift as traditional banking giants explore blockchain-based solutions in the rapidly growing stablecoin market.
SEC deems staking activities are not securities
The SEC’s Division of Corporation Finance announced that proof-of-stake (PoS) staking activities do not constitute securities transactions. This decision could facilitate the inclusion of staking in crypto ETFs and boost mainstream adoption.
Coinbase joins S&P 500
As the first crypto company in the S&P 500, Coinbase’s inclusion could attract significant investment from index-tracking funds, enhancing its market presence and potentially paving the way for other crypto firms to gain similar recognition, boosting sector credibility.
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