This editorial is taken from this week's issue of the 'Week in Review' newsletter, sent to subscribers on Friday. Subscribe to the newsletter to receive this weekly editorial right after it's published. The newsletter also includes the most important news of the week with commentary on each.
"Screw anyone telling you not to panic. The exploit is public, public attention is on it, and everyone has access to advanced LLMs. I think dozens of hacker groups are figuring out how to use this right now. You are in a race against time."
Probably best not to panic, but please devise a plan and take action now. End of warning.
Bitcoin fell to $62,500 on the back of an AI sector sell-off. This week Bitcoin recovered to around $64,000, but that might be because nobody is trading it! As it has been all year, attention this week was focused on stocks, specifically Asian markets and the AI sector. The South Korean stock market fell 8% in a single trading session amid an ongoing global chip sell-off, sending the KOSPI index down 35% for the month. This market has crashed 44% in 40 days, erasing $2 trillion in market capitalization and prompting the finance ministry to announce plans to 'stabilize' the market. The stories coming out of Korea from retail traders are both heartbreaking and baffling.
Much of the liquidation is attributed to Leopold Aschenbrenner's 'Situational Awareness' fund. FT confirmed that the $20 billion asset fund was seeking fresh capital from investors and lenders after heavy losses, even offering some investors the chance to directly buy out assets. Citadel reportedly bought the bulk of 'Situational Awareness' stock portfolio following a forced liquidation. The same Citadel that spooked markets with a warning that the Fed could hike in July—that version helped tank the AI company stocks that 'Situational Awareness' had highly leveraged long positions on. The hint that Kenneth Griffin and Citadel deliberately pushed 'Situational Awareness' into liquidation is something Mr. Griffin has done before.
What's next for the AI sector and the stock market? Perhaps we saw enough liquidation on Wednesday to spark a one to three day rally, especially in memory and semiconductor sectors. Ram Ahluwalia isn't rushing to buy, citing the 'hot hand' effect and predicting the semiconductor market might take a breather over the next couple of months. Flood advises patience, arguing you'll be rewarded for waiting, not for rushing to buy stocks thrown onto the market from liquidation. On the other hand, Jim Bianco notes that the market typically starts finding a bottom when someone finally breaks.
- He gave previous examples:
- "1998: LTCM
- 2018: Volmageddon — XIV / vol short squeeze
- 2020: Treasury basis trade / forced deleveraging
- 2021: Archegos — more specific, but same forced liquidation pattern
- 2022: UK LDI pension fund and gilt crisis"
While Mr. Aschenbrenner's 'Situational Awareness' was one immediate cause of stock market volatility this week, another was the Fed meeting under Kevin Warsh. Anna Wong thinks Mr. Warsh is doing exactly what he intended, which is to let long-term rates rise between meetings, effectively a 25 basis point hike. Others were less charitable, seeing signs of incompetence in Mr. Warsh's remarks and warning that this perception needs to change to avoid causing further market anxiety.
On other macro news, Michael Howell's CrossBorder Capital asked whether a massive debt deleveraging is already priced in amid shrinking global liquidity. And the promised US manufacturing boom appears to have barely begun, if at all. On Thursday, Japan's Ministry of Finance intervened in the yen market, buying yen to push the USDJPY pair down from around 164 to a low of 158. So far, these measures have proven ineffective.
Understandably, crypto news took a backseat to traditional finance and macro news this week, but there was still plenty happening worth noting. Unfortunately, the main theme was not a pleasant one. At least on the surface.
Crypto companies continued to shut down. A week after BitMEX announced its closure, BitMart announced a 'phased wind-down' of its trading platform. However, it might not be so phased, as BitMart is reportedly not processing withdrawal requests post-insolvency announcement. Next, Storj Labs filed for Chapter 11 bankruptcy after raising approximately $35 million, with the STORJ token price down 98.3% from its peak.
Those crypto companies still standing continue to battle the bear market. COIN stock plunged over 7% after reporting earnings worse than expected. Earlier this week, Uphold announced a 17% staff reduction. Here's a brief overview of crypto industry layoffs, a clear sign of a late-stage bear market:
- In February, Gemini announced a 25% staff reduction.
- In May, Coinbase announced up to a 14% staff reduction.
- In June, Bitgo announced a 15% staff reduction.
For the fourth week in a row, Strategy increased its USD reserve, this time by $525 million, reaching 2.1 years of dividend coverage, with 843,775 BTC held in reserve. A new twist: Strategy bought back 288,930 STRC shares for $25 million at an average price of $86.52, pledging to remain a "regular, disciplined buyer" under $100. So the cycle now looks like: sell MSTR common stock, don't buy bitcoin, retire preferred shares. Critics call this a 'Ponzi death spiral'; Mr. Saylor calls it discipline.
Brian Armstrong doubled down on the 'agentic commerce' concept, stating there are only 8 billion people on Earth, but the number of transaction participants could soon increase tenfold. Mr. Armstrong also pushed back against the 'pivot to AI' move, calling it a 'zero-sum game' and 'scarcity' mindset. Circle, a company closely linked to Coinbase, acquired key assets from IBM's blockchain patent portfolio. Circle acquired over 680 patent families and nearly 1,000 issued patents, making it a leading blockchain patent holder in the US.
In DeFi, Trade.xyz's success on Hyperliquid could become a problem. Given Trade.xyz's huge success, why wouldn't they take all the fee revenue for themselves? What happens if TradeXYZ launches its own chain? Similarly, one user noted that over 90% of active Solana wallets directly interact with Pump.fun. What happens to Solana if Pump launches its own chain, and why wouldn't they?
Speaking of Hyperliquid: a wallet linked to Axios on Hyperliquid is reportedly insider trading on every oil headline, getting 11 out of 11 right, including a nine-figure short opened hours before a ceasefire proposal. Last week, prediction markets cracked down on insider trading. Perp DEXs might want to take note. These are good problems, while on most chains activity is virtually nonexistent. Stani Kulechov announced that Aave is discontinuing support for 50 low-utilization asset reserves across various deployments and winding down on Sonic, Scroll, zkSync, Metis, Soneium, and Aptos.
Kyle Samani criticized his former firm, warning that if you're building projects in the Solana ecosystem, Multicoin is working against everything you create. Charles Hoskinson was asked for the twelve-thousandth time whether he co-founded Ethereum, and he did not take it well: 12 years, same question… Enough already. It's old news. And CZ made a modest proposal: give Satoshi a 12-month deadline to move his coins before a quantum upgrade, then freeze them.
In the AI and crypto space, Jason Calacanis rediscovered Bittensor. Oh boy. He's excited about the model: open source, open competition, validator verification. Barry Silbert endorsed him: Mr. Calacanis gets it. Don't miss Bittensor $TAO. Mr. Calacanis went further, speculating that if Jensen Huang knows what Bittensor is and NVIDIA is involved at any level, it's worth paying attention to. He then recommended friends buy one $TAO coin as a $200 lottery ticket, hoping for Bitcoin-like growth, and to vote for distributed, uncensorable, sovereign AI. These loud altcoin-promoting venture investors have a less-than-stellar track record. Be careful not to become the exit liquidity for VCs.
Finally, let me reiterate the need for vigilance regarding the Coldcard vulnerability. Hopefully, this is an isolated case for now, concerning only Coldcard, but AI is likely to make many more such hardware wallet hacks possible.
Self-custody is important, but requires a high degree of personal responsibility. Stay safe, stay vigilant!
-David Sensil
