This editorial is from this week’s edition of the newsletter Week in Review, sent to subscribers on Friday. Subscribe to the newsletter to get this weekly editorial the second it’s finished. The newsletter also includes the biggest stories of the week, with a comment on each story.
Bitcoin round-tripped from last Friday to now, pushing up through the week before giving back all its gains on Thursday, when an oil spike (Brent crude jumped roughly 7% to above $113) and a tech rout hit risk assets. An AI-spending scare was mostly to blame for the tech weakness.
Bitcoin’s relative strength against the Nasdaq and AI-linked equities stood out early in the week. Grayscale’s volatility data also supports the hope (the dream) that maybe, just maybe, Bitcoin is becoming less volatile. Unfortunately, lower volatility tends to cap the mind-melting upside too.
There are potential short-term headwinds for Bitcoin right now. The Coinbase premium hit its most negative level since July’s bottom, indicating heavier selling pressure in the U.S. than on offshore exchanges. Thursday’s sell-off also brought the biggest one-day outflows from U.S. Bitcoin ETFs since June. Glassnode put ETF holders’ cost basis near $81,000, with a break below that level threatening a return to the low $70,000s.
Bitwise CIO Matt Hougan said in an interview with Bitcoin.com News that we’re in the early stages of a bull market. The long-term trend is up, but expect volatility. Benjamin Cowen sees room for another decline that would fit previous four-year cycles. Rational Root’s halving-progress analysis, now at 63%, suggests the bottom is already behind us.
Mr. Hougan, providing more bullish fodder, pointed out JPMorgan’s projection that bitcoin would lead long-term asset returns. Yes, this is coming from the bank run by Jamie Dimon, who once called Bitcoin a fraud and a Ponzi scheme, saying “there’s no hope for it.” I guess it’s good when skeptics come around, but it does leave a bad taste in the mouth.
Time for a palate cleanser. For those hungry for more bullish confluence, the McRib is back:
“BTC historically goes up >2x after the McRib returns. Don’t fade the McRib.”
Lastly, there was one out-of-left-field positive for Bitcoin this week. Gold might no longer be safe from debasement if an announced method of producing it through nuclear transmutation proves real. Michael Green thinks the gold-supply concern has merit, but regards quantum threats to bitcoin as more existential. At least both gold bugs and bitcoiners have something to worry about in alchemy and quantum computing, respectively.
On the macro front, bond yields kept falling, lending support to last week’s discussion of whether rates have peaked. Oil markets are signaling higher prices ahead. Lyn Alden warned that inflation is trending upward and noted that pending U.S. home sales are back at 2001 levels. Chinese equities keep falling, now on a ten-week losing streak. Some may be tempted to buy back in eventually, but it’s important to remember that China’s stock market is “still below where it was in 2007. [N]early two decades of ‘growth’ and the shareholders got nothing.”
On to crypto news. After praising Hyperliquid last week, Bloomberg’s Joe Weisenthal followed up by conceding that the suits who argued years ago that blockchain would be useful for traditional finance might’ve been right. A couple of days later, a16z, one of crypto’s largest VCs, announced that it would drop “crypto” from its flagship fund’s name to signal that it’s expanding beyond blockchain. Multicoin, on the other hand, said it’s sticking with crypto over AI, and that HYPE is its largest position.
Despite lackluster performance from Bitcoin and other digital assets, growth in real-world-asset (RWA) perpetuals helps explain Multicoin’s position. But CEXs like Binance and OKX are gaining share of RWA perp volume. “In July, Hyperliquid had ~80% of RWA perp volume. This week: 26%.”
In other RWA news, JPMorgan launched its deposit token on Ethereum. Omid Malekan criticized it, arguing that a tokenized deposit unable to enter defi or swap atomically for another asset offers less than an ordinary bank book transfer. Yuval Rooz defended tokenized deposits, saying issuers can permit defi participation. Austin Campbell also weighed in on the big differences between deposit tokens and stablecoins.
Speaking of Mr. Campbell, this week’s Bits + Bips featured a great segment on stablecoins. Adoption by banks and large businesses is still early. The entire stablecoin market is worth about $300 billion, roughly the annual revenue of some of the companies this week’s guest works with. The guest also implicitly predicted that Tether would be unseated as the largest stablecoin issuer once businesses start relying heavily on stablecoins regulated and issued in the U.S.
Meanwhile, Citi thinks Aave could become a decentralized prime brokerage.
In politics, headlines about France’s 31.4% tax on crypto-to-stablecoin swaps refer to a proposed amendment, not final law. The proposal would make gains taxable when investors swap into qualifying stablecoins. In the U.S., DonAlt thinks Democratic midterm victories could help crypto by limiting disruptive presidential policy.
One of the few things in crypto that politicians universally like is prediction markets. Apparently, they all cite prediction-market data. And yet, prediction markets are getting a lot of bad press. Polymarket faced another unfavorable profile, this time from Bloomberg. Dragonfly’s Haseeb Qureshi defended Polymarket CEO Shayne Coplan. As one of Polymarket’s earliest investors, Dragonfly would know the company’s financial history better than most.
PaperTrade, which captured the imagination of CT (Crypto Twitter) last week, announced that its PAPER tokens would remain non-transferable after failing to solve a problem its founders knew about before launch. They had expected to fix it before it became existential. The criticism was blunt and near-unanimous. This experiment looks to be short-lived.
As covered here, many “experiments” such as Blast and Blur have closed this year. Stacy Muur compiled a list of 82 protocol shutdowns.
The case for memecoins hasn’t improved. This investigation into who actually profits from memecoins concluded that the beneficiaries are the launchpads themselves, coordinated insiders and bundlers. No surprises there. This next story is a bit of a surprise and a head-scratcher. Pump.fun promoted a trader called Kimchi. Apparently, this kid has no aura, but a bunch of crypto KOLs decided to fabricate his coolness as a joke. The stunt sparked debate over whether it’s tasteless stupidity or exactly what resonates with very young audiences.
In privacy, Arkham published a guide on privacy coins that added fuel to the Monero-Zcash debate. Monero supporters touted that 68% of dark web transactions used Monero. ZachXBT traced more than $20 million in illicit flows into a Monero swap service on Hyperliquid, prompting supporters to celebrate Monero’s appeal to criminals. At the very least, this is bad optics.
On a related note, the D.C. Circuit upheld Roman Sterlingov’s Bitcoin Fog convictions and 150-month sentence on Sept. 25. Bitcoin Fog was a bitcoin “mixer” in a similar vein to Tornado Cash. What’s worrisome is that the D.C. Circuit upheld the admission of Chainalysis evidence that had no peer review or known error rate, and rejected the defense’s demand for its source code.
Time for a privacy PSA. By default, Telegram is in no way, shape, or form private. Don’t use it as if it were. Ordinary chats are not end-to-end encrypted, but Telegram says Secret Chats are. Do not trust this, though. Even if they are private, Telegram says “it may retain metadata such as your IP address, device information and username history for up to 12 months.”
Finally, security. Good news first. Claude helped reconstruct how the seeds for ECDSA curves were chosen. There have long been suspicions that the seed-generation process hid a backdoor. The video explanation and further discussion point toward benign origins.
Other than that, there was lots of bad news this week. Critical PHP vulnerabilities prompted government-service shutdowns, with multiple major incidents drawing attention. Illia Polosukhin called it a “security Armageddon.” Claims that a simple AI prompt helped uncover the flaw hint at a turbulent time ahead in which finding debilitating bugs may no longer require elite attackers. The PHP developers’ advisory urges immediate updates.
Railway disclosed a compromise involving customer secrets, and Zipcoin said it was shutting down after being hit by the breach. Railway’s own notice says some encrypted environment variables may have been decrypted and recommends rotating credentials. Separately, major U.S. banks reportedly detected AI agents accessing accounts and going beyond customers’ requests.
The wave of AI-assisted hacks that Bitcoin and the broader digital-asset space have dealt with for more than eight months now appears to be spreading to the rest of the tech world.
Stay safe out there.
-David Sencil