Consolidation, Rotation and Tail Hedging
- Aug 10
- 4 min read
August 2026
Dear Investors,
July was a month of consolidation with a sting in its tail. Digital assets stabilized after June's washout: Bitcoin recaptured the $60,000 level early in the month, total crypto market capitalization held a narrow $2.24–2.28 trillion band, and on-chain activity rebounded strongly; Robinhood's newly launched chain reached top-five DEX volumes globally within two weeks of going live.
Equities told the opposite story: the AI/semiconductor complex saw our anticipated shake out late in the month. Memory and AI-infrastructure names sold off sharply, Korea's KOSPI suffered a panic decline followed by a record single-day rebound of nearly 18%, and the collapse of the highly leveraged AI-infrastructure fund Situational Awareness, which sold the bulk of its roughly ~$45 billion portfolio to Citadel, may have completed the largest immediate unwind.
Importantly, the fundamental demand picture stayed intact: hyperscaler earnings confirmed accelerating compute demand (Azure revenue +43%, AWS +37% year-over-year, Alphabet raising its 2026 capex guidance towards $200 billion), supporting our view that this was a valuation and positioning event, not a demand event.
In Washington, the Senate released the combined text of the CLARITY Act, although a floor vote before the August recess now looks unlikely.
Portfolio Activity
We wrote last month that caution and selectivity were warranted in the frothier parts of the AI trade, and we positioned our portfolios accordingly ahead of the late-July drawdown:
Took profits in AI-datacenter and mining names at the margin: after several weeks of strong performance, we marginally reduced positions in CleanSpark, Cipher, Hut 8 and Keel Infrastructure. This was profit-taking, not a change of view; we continue to hold these names.
Trimmed digital-asset ETP exposure at the margin (Bitcoin, staked Ether and Solana staking ETFs), while keeping our core digital-asset exposure intact.
Rotated into financial infrastructure: we added to positions in Block, Figure Technology, Visa and Mastercard, names consistent with our theme of scalable financial-services businesses positioned to benefit from blockchain rails, at reasonable valuations.
Tactically tail-hedged the memory sector: we bought December-2026 puts on the memory sector ETF ("DRAM"), the poster child of the bottleneck rally we flagged in our last letter, and monetized the hedge into the selloff, closing the position on July 20 at a gain of roughly 29%.
Market View & Outlook
As we look into the remainder of the year, we summarize our forward-looking view as follows:
The AI buildout remains solid, but rotation is underway. The widely observed bottlenecks (memory, power, advanced packaging) are now, in our view, mostly fully priced, in some cases overpriced. We concentrate on the compute-infrastructure component of the stack, as we believe the AI transition will continue to require more compute in aggregate, regardless of whether open-source models or frontier labs "win the AI race". All roads lead to more computing demand.
Crypto-specific holdings remain in a holding pattern. That said, we believe the risk-reward is shifting towards lower volatility and potential recovery, and we continue to favor assets with scarcity and/or clear value-accrual mechanisms.
We are in neutral territory with the overall allocation. Having tactically tail-hedged the portfolio at the margins in July and reduced some AI-datacenter exposure, our allocations are now broadly neutral with our current views. Given the long-term approach and objective of the portfolio, we acknowledge the impact of macro markets while focusing on a balanced allocation, and we will continue to tactically hedge or take active views where and when warranted.
If you would like to discuss any of our current market observations, please reach out to us via email.
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