Monthly Update - May

May was a month of contrasts. The macro backdrop shifted materially, digital assets delivered divergent performance across the portfolio, and a long-anticipated protocol upgrade finally went live. Against a backdrop that included a historic U.S. sovereign credit event, significant ETF outflow pressure, and continued monetary policy uncertainty, MN Fund generated a net return of +1.02%. Bitcoin dropped -2.92% and Ethereum -10.61% over the same period. As in previous months of choppiness, systematic volatility trading functioned as the primary return engine.

A Historic Macro Shift

The defining macro event of May arrived on the 16th, when Moody's stripped the United States of its last remaining perfect credit rating, downgrading U.S. long-term sovereign debt from Aaa to Aa1. The move follows similar actions by S&P in 2011 and Fitch in 2023, leaving the United States with no top-tier rating from any major agency for the first time since Moody's began rating U.S. debt in 1917. Moody's cited persistent fiscal deficits, rising interest costs, and a projected debt-to-GDP ratio of 134% by 2035.

The immediate market reaction was sharp. Treasury yields climbed, the dollar weakened, and risk assets sold off broadly. Bitcoin fell to approximately $75,000 in the hours following the announcement. The medium-term read is more nuanced. Fiscal debasement concerns and a structurally weakening dollar are precisely the conditions that have historically strengthened the case for non-sovereign assets, and Bitcoin's relative resilience through the shock was notable. This is not a short-term catalyst, but it reinforces a structural argument for digital assets that is becoming harder to dismiss.

The Federal Reserve held rates steady throughout May, with Q1 CPI running at 4.5% and maintaining pressure on the rate path. Newly confirmed Fed Chair Kevin Warsh's first public communications signalled a preference for data-dependency over premature easing, tempering some of the earlier market enthusiasm around rate cuts. The combination of sticky inflation, rising Treasury yields, and continued trade policy noise kept macro conviction limited through most of the month.

If you'd like to learn more about how MN Fund is positioned, you can request our factsheet or book an introductory call via mnfund.nl.

Institutional Flows Reverse, Then Stabilise

After April's strong institutional inflows, May saw a meaningful reversal. Bitcoin ETPs recorded approximately $1.47 billion in outflows in a single week mid-month, the largest weekly withdrawal of 2026, erasing roughly half of April's cumulative inflow gains. Ethereum ETP outflows extended to ten consecutive negative days at one point. The reversal appears to reflect a combination of profit-taking following April's strong run and risk-off repositioning around the Moody's event, rather than a structural change in institutional appetite.

One notable exception: XRP ETFs bucked the broader trend, recording their strongest monthly inflows of 2026, a dynamic that reflects the distinct institutional narrative building around that asset following the SEC's earlier commodity classification.

Beneath the flow data, one of May's quieter but more structurally significant developments was the continued acceleration of real-world asset tokenization. On-chain RWA value excluding stablecoins crossed $32 billion in May, more than tripling over the past year. BlackRock filed with the SEC for two additional tokenized fund structures and its BUIDL fund crossed $2.4 billion in AUM, increasingly being used as collateral across DeFi protocols. The structural convergence between traditional finance and on-chain systems is no longer a thesis. It is an observable trend, and for a fund operating at the intersection of digital assets and institutional capital, it is directly relevant to how we think about portfolio positioning.

Asset Developments

Ethereum closed May with its most consequential protocol upgrade since The Merge. The Glamsterdam hard fork went live in the final days of the month, delivering parallel transaction execution, Enshrined Proposer-Builder Separation, and a block gas limit expansion from 60 million to 200 million. The immediate results were significant: all-time high L1 daily transactions alongside a roughly 78% reduction in gas fees. For the first time in years, complex DeFi interactions can be executed on Ethereum mainnet for under $0.10.

One tension worth addressing directly: despite the strongest network fundamentals Ethereum has seen in years, ETH price remained largely disconnected from the technical progress, closing May near $2,000 and continuing to underperform Bitcoin year-to-date. The Glamsterdam catalyst has not yet translated into ETF inflows or sustained price recovery. The protocol's technical case has rarely been stronger. Whether price follows remains the key question heading into June.

Aave's recovery from April's LayerZero exploit moved substantially faster than most expected. On May 9, a Manhattan federal judge cleared the last legal hurdle around $71 million in frozen ETH tied to North Korean Lazarus Group terrorism claims, permitting transfer to an Aave-controlled wallet. By May 12, the Arbitrum DAO had voted to execute the transfer. On May 17, WETH loan-to-value ratios across all six affected Aave V3 deployments were fully restored to pre-incident levels, a meaningful normalisation signal. Aave V4, with its modular hub-and-spoke architecture, is now live on Ethereum. April's incident and May's recovery have, somewhat counterintuitively, reinforced Aave's standing as the DeFi protocol most capable of coordinating a credible ecosystem-wide crisis response.

Avalanche's most significant development in May was the launch of CME Group AVAX futures, with initial trades clearing on May 6. The regulated, cash-settled derivatives product opens Avalanche exposure to a class of traditional finance participants who require regulated instruments, mirroring earlier phases of Bitcoin's institutional maturation. Japan's Progmat, the country's leading security token platform, also announced its migration of tokenised assets to Avalanche, adding a meaningful real-world asset dimension to the network's institutional narrative.

Sei continued its path toward the Giga upgrade throughout the month, with the SEIEVM migration receiving Binance support in late May, making the network fully EVM-compatible for the first time. The Giga upgrade targets over 200,000 transactions per second and sub-400 millisecond finality through the new Autobahn consensus mechanism, and remains the protocol's primary milestone for 2026. Sei traded near $0.07 to $0.08 through the month, with the gap between network ambition and current market pricing representing either deep undervaluation or persistent low conviction. Resolution will likely depend on whether Giga lands on schedule and attracts meaningful developer activity.

Fund Performance

MN Fund closed May at +1.16% gross (+1.02% net), a constructive result against a backdrop that included a historic sovereign credit event, significant ETF outflow pressure, and continued macro uncertainty. The result continues to demonstrate the core function of our volatility trading pillar: in months where directional exposure to digital assets would have produced negative returns, systematic volatility capture generated positive alpha. Bitcoin down nearly 3%, Ethereum down over 10%, and the fund modestly positive is precisely the profile that volatility trading is designed to produce.

Outlook

The June outlook is shaped by three variables. First, whether Glamsterdam's technical improvements begin to translate into ETH price recovery as the network's utility case becomes increasingly undeniable to institutional allocators. Second, whether the altcoin momentum evident in May sustains into a broader rotation as Bitcoin dominance stabilises. Third, and most structurally significant, how markets absorb the medium-term implications of the U.S. credit downgrade. We view the Moody's decision not as an immediate catalyst but as a slow-burning tailwind for non-sovereign assets. A U.S. with no top-tier rating from any major agency is a different macro context than the one most institutional portfolios were constructed for.

On the regulatory front, the Digital Asset Market Clarity Act cleared the Senate Banking Committee in a 15-9 bipartisan vote on May 14, advancing to the Senate floor. Full passage before August remains the stated objective of the bill's advocates, though meaningful hurdles remain around ethics provisions and law enforcement concerns. If it clears the full Senate and reconciles with the House version, the structural impact on institutional participation in digital assets would be significant. We continue to watch the process closely.

Our positioning remains the same: lean core holdings and active volatility capture, with selective OTC deployment where opportunities arise.

If May's events raise questions about the fund's risk framework or positioning into Q2, we are happy to walk you through our thinking in more detail. Request our factsheet or schedule a call directly Calendly.

Past performance is not indicative of future results. This content is provided for informational purposes only and does not constitute investment advice or an offer to invest. Investing in digital assets involves significant risk, including the potential loss of capital.