Ninepoint Crypto and AI Leaders ETF

To say it has been a difficult stretch for crypto would be an understatement. Bitcoin posted its worst first-quarter performance (-22.48%) in Q1 2026 since 2018 and endured five consecutive months of negative returns from October 2025 through February 2026. Sentiment reached historic lows in February and has remained in “extreme fear” territory, worse than levels seen during Liberation Day, the FTX collapse, and even the COVID-driven selloff.

To outside observers and tourists, crypto is on its deathbed, with an accelerating number of obituaries once again being written. However, for crypto-natives, this atmosphere is anything but unfamiliar. 2026 is the fourth year of this current crypto market cycle, which has historically operated in four-year patterns: three straight years of strong positive performance followed by a sharp drawdown in the fourth. Two cycles ago, Bitcoin increased from $360 to $19,900 between 2015 and 2017, then declined 73.56% in 2018. Last cycle, Bitcoin increased from $3,700 to $69,000 between 2019 and 2021, then declined 64.27% in 2022. This cycle, Bitcoin increased from $16,500 to $126,000 between 2023 and 2025, and is now down 22.48% to date in 2026. Many investors, including ourselves, subscribed to the view that this cycle would be different, given the scale of institutional participation, strengthening fundamentals, and supportive regulatory tailwinds, and terminate the speculation-fueled, four-year boom-bust cycles. While that thesis appeared credible - Bitcoin’s -6.34% return in 2025 was its first-ever negative performance in the third year of a market cycle - it has been invalidated so far this year, considering the drawdown.

That is certainly the framework that many cycle-oriented investors would point to as the cause behind the crypto market correction, and to some extent, they have a point. However, a deeper look under the hood reveals a more nuanced picture:

First, crypto asset price action early in the year was closely tied to expectations on the CLARITY Act’s probability of passage. Bitcoin rose from $87,500 to this year’s high of $98,000 by mid-January as the bill’s odds of being signed into law by year-end climbed above 70%. However, on January 14, Coinbase CEO Brian Armstrong withdrew support for the drafted bill, causing those odds to plummet to 40% and with it a sharp reversal in Bitcoin’s price.

Second, the subsequent significant downside move occurred on January 30, when President Trump officially nominated Kevin Warsh to succeed Jerome Powell as the next Federal Reserve Chair. Markets swiftly interpreted this as a less accommodative signal, given Warsh’s historically hawkish stance and preference for tighter liquidity conditions. This ignited an intense and reflexive selloff in crypto, sending Bitcoin from $89,000 to $60,000 in the space of a week.

Third, is the Iran conflict, which began on February 28, and introduced another layer of uncertainty as investors assessed its implications on global markets and trade. Interestingly, Bitcoin did initially decline from $66,000 to $63,000 following its onset, but quickly reversed higher, solidifying crypto’s position as one of the better-performing asset classes since the war began. This may support the view that crypto, as it has in the past, acted as a leading indicator for broader markets, with its downturn beginning in October 2025, and could suggest a crypto bottom has already formed or is in the process of forming, though it is still too premature to declare.

Fourth, it is important to contextualize the magnitude of crypto’s drawdown relative to the broader technology investment universe. Bitcoin is now down 45.97% from its all-time highs in October 2025, compared to the iShares Expanded Tech-Software Sector ETF (IGV) - a proxy for software names - which is down 30.76% over the same period. Across the Magnificent Seven, most constituents are meaningfully off their all-time highs over the same timeframe, with a majority in double-digit correction territory of the mid-to-high teens. To be sure, crypto assets trading largely in lockstep with software over the past year is surprising to us and a trend we expect will break. AI creates abundance and has dramatically democratized access to code creation, enabling anyone to become a developer and build their own applications. This understandably has massive implications on Software as a Service (SaaS) businesses, which markets have become increasingly concerned about as evidenced by their significant stock declines. That said, we believe the market is behaving irrationally in certain instances by failing to recognize and underwrite the power and value of network effects – both in legacy SaaS companies and crypto networks. With AI, you may be able to replicate code but you can’t replicate a user base, trust, distribution, security, integrations, or partnerships. Viewed through these lenses, the current downturn is not isolated to crypto, but rather part of a broader repricing across technology names.

Our conviction in crypto remains unchanged. We continue to see a growing number of fundamental tailwinds supporting the long-term outlook for the asset class, which we believe are laying the foundation for the next bull market. Despite the drawdown in Q1 2026, Wall Street institutions and legacy enterprises leaned in harder than ever before. BlackRock took its first step into Decentralized Finance (DeFi), integrating its tokenized fund, BUIDL, into Uniswap and purchasing UNI tokens. Apollo entered into a partnership with Morpho, providing them with the ability to acquire 9% of the MORPHO token’s supply. Morgan Stanley filed to launch a suite of crypto ETFs (Bitcoin, Ethereum, and Solana), appointed a new Head of Digital Asset Strategy, and is said to be launching its own digital wallet for tokenized real-world assets (RWAs) later this year. The NYSE tapped Securitize to help develop a 24/7 tokenized securities platform while Nasdaq teamed up with Kraken to do the same. Fannie Mae greenlighted its first crypto-backed mortgage product. Mastercard acquired stablecoin infrastructure firm BVNK for $1.8 billion. S&P Dow Jones Indices licensed its iconic S&P 500 Index to Trade[XYZ], enabling an onchain and globally accessible 24/7 perpetual market to the benchmark on Hyperliquid. Franklin Templeton announced its collaboration with Ondo to tokenize and bring five of its ETFs onchain. Invesco took over management of Superstate’s USTB tokenized treasury fund to help jump-start its tokenization efforts. Kraken became the first crypto firm ever to secure a payment account with the Federal Reserve. And Meta is reportedly looking to make a stablecoin comeback in H2 2026 that could see wallets and payments being integrated across its suite of brands. Every single one of these announcements occurred in Q1 2026, illustrating just how much crypto markets and adoption have decoupled in the past few months. At the same time, underlying crypto fundamentals and activity continued to grow to new heights. The stablecoin market eclipsed $300 billion in size and processed $4.4 trillion in transaction volume (up from $2.0 trillion year-over-year). Tokenized RWAs - led by treasuries, commodities, and credit - grew to nearly $30 billion (up from $8 billion year-over-year). Prediction market volumes surged, experiencing $44.3 billion (up from $5.7 billion year-over-year). Onchain activity on leading crypto networks like Ethereum broke through prior highs, with Ethereum recording 200 million transactions (up from 110 million year-over-year). All of the data - no matter where you look - tells the same story: crypto’s fundamentals have never been stronger.

Additionally, a technical analysis does reveal some encouraging insights - there are a couple of data points that we would like to highlight. First, Bitcoin’s Relative Strength Index (RSI) dropped below 30 in Q1 2026 for only the third time in history, with the past two such instances (January 2015 & December 2018) marking cycle bottoms. It is important to note that the market consolidated for eight and three months, respectively, after those events before rallying higher; it has only been two months this time around, suggesting a prolonged consolidation is ahead. Second, the Bitcoin Long Term Holder Supply has once again began to materially expand, growing by 900,000 BTC to 14,900,00 BTC since the local low in December 2025. For perspective, this stood at 15,900,000 BTC in June 2025 before experiencing five consecutive months of decline. Historically, long-term holders stepping in and accumulating in size has served as a positive inflection point signal and proved to be constructive in the months ahead. Third, capital inflows into crypto via the two biggest demand sources over the past two years - investment products and public companies - are showing signs of revival. Crypto ETPs experienced bleeding to start the year, with cumulative net outflows reaching a high of $1.6 billion by mid-February, before seeing some sustained inflows and ending Q1 2026 with a net outflow of only $0.6 billion. Public companies bought $9.2 billion of crypto assets (relatively in line with Q4 2025), but the key insight lies in the month-over-month growth from February (+$725 million) to March (+$3.7 billion). Given the highly reflexive nature of crypto assets, we monitor these capital flows closely and will continue to do so as Q2 unfolds. That said, it’s important to understand that a large share of these public crypto treasury companies - Digital Asset Treasuries (DATs) - trade at meaningful discounts to the net asset value of their crypto holdings, which does pose a potential risk of future selling pressure as some may opt to sell a portion of their crypto assets to fund share buybacks so long as that below-NAV dynamic persists. This risk is particularly prevalent for DATs that took on debt to accelerate their accumulation strategies. We’ve already seen several smaller-sized DATs begin to take these actions, but have yet to observe one of the larger-scale DATs do so. Should market conditions continue to deteriorate, then this ‘forced’ selling could proliferate.

In closing, this has been a difficult period for markets, specifically across the crypto and AI ecosystems, but our conviction in both asset classes and approach remains steadfast. We think times like these are incredibly illustrative of how our dual-theme, diversified, and actively managed strategy is better positioned to navigate volatility and capture the full growth across asset classes, rather than single-asset exposure. We remain focused on deploying capital into what we view as the best opportunities across the crypto and AI ecosystems to generate the highest risk-adjusted returns for Unitholders. We are confident in the long-term trajectories of both crypto and AI, and in our ability to position the Fund to participate meaningfully in their next phase of growth.