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 fell to $75,618, a seven-week low near its 50-week moving average, as the U.S. midterm election results came in. By Thursday morning, it had reclaimed $80,000. The initial decline in stock futures gave way to a 3% Dow rally on Wednesday, quite a reversal from the first reaction to a Democratic sweep.
Then the AI trade broke the market. The Nasdaq Composite fell 5.52% to 24,315, its deepest one-day drop in 19 months. The Nasdaq 100 lost 6.4%, its worst session since the March 2020 Covid panic. The S&P 500 fell about 4.4%, and the Dow fell 3.4%. Bitcoin went with it, sliding from above $80,800 to just under $76,000 by the close, down 5.2% on the day. Gold, the undisputed risk-off hedge, rose 0.6% to $4,094.
For those desperately reaching for a silver lining, Thursday marked “the second time in history the Nasdaq fell more than 5% and Bitcoin fell less than the Nasdaq.”
The damage is showing up at hedge funds, with ongoing rumors of PMs blowing up. According to Goldman Sachs data, hedge funds net sold about $20 billion of tech over two weeks. Five trading days erased the AI net-long positioning they had built since early 2025. Leopold Aschenbrenner’s Situational Awareness lost 67% in July, sold most of its holdings to Citadel, and reports suggest it has been caught a second time.
The aftershock reached Seoul on Friday. The KOSPI fell more than 8% within minutes of the open, which triggered a 20-minute halt. That came after a 5.28% drop on Thursday. As of Friday afternoon JST, four major stock markets in Asia are down 20%+ since June.
Most worrying is the fact that U.S. Treasury yields have barely budged. Anna Wong, Chief U.S. Economist at Bloomberg:
“Nasdaq down 6.4%, the steepest single day drop since March 2020. Yet 10-year yield rallied only 5 bps. We’ve got a problem. An AI collapse can morph into a fiscal crisis.”
This is not fearmongering, considering Japan briefly halted government bond futures trading Friday after a sharp sell-off.
With the midterms decided, the game moves on to determining the ramifications of the Dems’ sweep. Gridlock seems likely, which might mean the market impact is short-lived. Then there’s the fear that precipitated Thursday’s sell-off: that Democrats will halt data centers and cripple AI development in the U.S. This is akin to how Dems stopped fracking and slowed oil and gas drilling under Biden, oh yeah, they didn’t.
The midterms were certainly propelled by an anti-war sentiment. Unfortunately, being anti-war doesn’t stop wars, and the opposite of war is not necessarily “peace.” Also, neither escalation nor an American retreat is likely to result in materially cheaper energy. Reports of another Ukrainian strike on Russian refining capacity reinforced the point.
For crypto, Austin Campbell expects congressional retribution, particularly against an industry that aligned itself with Trump, or at least did little publicly to condemn aspects of corruption surrounding World Liberty Financial and the TRUMP memecoin. TRUMP is down more than 30% since the midterm results came in. Justin Sun took this time to update everyone on his one-man war against World Liberty.
The midterms weren’t exclusively bad news for crypto. Stand With Crypto calculated 51 senators have a pro-crypto rating vs. 52 before. Its tracker classified 226 House winners and 19 Senate winners as pro-crypto.
Prediction markets themselves came out looking good. Haseeb Qureshi pointed to Polymarket’s early call while traditional media remained cautious. Polymarket says 419 of 426 resolved races went to its pre-election favorite, a 98.4% hit rate.
Moving beyond the midterms, U.S. regulators have continued to advance policy briskly. SEC staff released updated crypto FAQs clarifying how token buybacks, governance and network upgrades factor into securities analysis. The CFTC announced that equity perpetual futures can begin trading on registered exchanges. Unsurprisingly, a group backed by financial incumbents such as Citadel and Cboe sued, arguing the move encroaches on SEC jurisdiction and violates congressional rules.
Not all tradfi institutions are fighting the inevitable. ICE and Trade.xyz’s planned U.S. venue will offer 24/7 markets across crypto, stocks, indices, commodities and currencies, accessed through regulated intermediaries. Bloomberg’s attention to Hyperliquid continued with Ryan Weeks’s profile of Jeff Yan. Morgan Stanley joined DTCC’s tokenization service, saying it was “among the first banks to tokenize real-world assets.” Morgan Stanley was one of 20 at launch, including Bank of America, Barclays, and BNP Paribas.
Not every crypto business is benefiting. Coinbase reached a 970-day low, spurred by Morgan Stanley downgrading the company and slashing its price target by 53% due to weakness in future, citing weaker expected earnings. Jeff Dorman’s critique is that high-fee retail trading is fading, leaving expensive acquisitions assembled into competitive, low-margin businesses without a moat. Circle, by contrast, beat expectations with $226 million in quarterly net income, while cutting about 5% of its workforce as it adopts AI. Blockworks completed its integration of Messari.
A crypto researcher at Bitwise released The DeFi Winners Portfolio, which basically consists of battle-tested defi projects with token value-accrual tokenomics. A far cry from memecoin chicanery. Speaking of which, South Korea is seeking another crypto-tax delay, from 2027 to 2029. It would preserve South Korea as one of, if not the most, active crypto trading hubs in the world. Unfortunately, much of this activity is in lottery-ticket-like memecoins.
Ethereum’s Devcon took place in Mumbai this week. It appears there were more complaints than usual about this year’s conference. Complaints ranged from the location, and the event being too business-focused, to poor attendance and low-quality merchandise hunters. A common thread throughout Devcon posts was the feeling that somehow Ethereum has lost its way, or its soul.
Paraguay supplied a rather concrete reminder. Ueno Bank’s collapse and reports of millions losing access to their accounts. Yes, Paraguay’s central bank passed a resolution to protect depositors, but only up to about $38,000, and interrupted access is of course not painless.
Finally, security. Binance’s initial findings of the hack put affected assets at $6.34 billion, with $2.85 billion frozen or intercepted. It says 98% of impacted token assets had been replenished by October 31. Comparisons with history’s largest heists give some sense of the scale.
The explanation is more involved than one compromised laptop. Binance describes fake recruitment interviews, malicious developer tools and an internal AI system used to reach other engineers and the wallet-signing service. Ilya Lichtenstein, the Bitfinex hacker who now says he works as a white hat, also pointed to North Korean tactics targeting employees.
Ethereum’s EIP-7702 let attackers delegate wallet execution to their own code. Shutting down normal withdrawals didn’t revoke permissions already recorded onchain. An earlier analysis also described a 28,000-ETH automatic refill feeding the drain.
The FBI attributed the attack to North Korea, identifying TraderTraitor activity and publishing addresses it wants service providers to block, explicitly including Thorchain node operators. Thorchain needs to watch out, because Taylor Monahan points out that “every official attribution like this has been historically followed by cases and/or more sanctions against services.”
After multibillion-dollar outflows when Binance withdrawals reopened, CZ cited $2.8 billion in net inflows over 24 hours. Binance appears to have retained substantial customer confidence. From off-the-record conversations, suggest tradfi institutional players have already moved on from the Binance hack because the hole was filled so quickly.
Public perception might be harder to repair, as noted in this article, which also points out that tradfi has faced numerous similar breaches and instances of misconduct without lasting reputational damage. However, the fact that security remains a pressing issue, far from being solved, is maddening. Lorenzo Valente breaks down hacks in crypto, which “has suffered $27.6B in losses since 2011.”
Trezor reported a credible, not yet physically examined, implant allegation involving a Safe 5 bought through CryptoBilis. No buyer has reported lost funds. Its notice advises affected customers who bought from March onward to move funds to a newly generated seed, rather than reuse the old one, and to contact support. Chainalysis reportedly suffered a breach too, exposing customer names, emails and roles through what it called “offensive agentic techniques.”
Mercado Bitcoin froze deposits and withdrawals amid reports of a $40 million hack and a separate $106 million European-exchange breach. BTCPay Server urged operators to shut down instances after reports of unauthorized hot-wallet sweeps.
The attacks are not just limited to crypto. Questions about an undisclosed bank breach were followed by reports of roughly €118 million stolen from Crédit Mutuel Arkéa through exchange accounts.
European supermarket refrigeration systems were reportedly disrupted. A French blood-storage contractor was targeted too, with settings allegedly changed from -30°C to 110°C. Luckily, the attempt was intercepted, with no health impact or lost blood products.
Stay safe out there.
-David Sencil
