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.
“Fu** the people telling you not to panic. The exploit is out in the wild, public attention is on it, and everybody has access to frontier LLMs. I imagine there are dozens of hacking teams now researching how to exploit this. You are in a race against time.”
It’s probably best not to panic, but please plan out and take action now. PSA over.
Bitcoin fell as low as $62,500 due to the AI sector selloff. Bitcoin recovered to around $64,000 this week, but that could be because nobody is trading it! As has been the case all year, the attention this week was on equities, specifically Asia and AI. South Korea’s stock market fell 8% in a single session as the global chip selloff continued, pushing the KOSPI down 35% on the month. That market collapsed -44% in 40 days, erasing $2 trillion in market cap, forcing the finance ministry to announce plans to “stabilize” the market. The stories coming out of Korea from retail traders are heartbreaking and head-scratching.
Much of the unwind has been attributed to Leopold Aschenbrenner’s Situational Awareness. The FT confirmed the $20 billion fund sought fresh capital from investors and lenders after heavy losses, even floating letting some investors buy assets directly. Citadel reportedly bought most of Situational Awareness’s stock portfolio after the forced unwind. The same Citadel that had been spooking markets by warning the Fed could hike in July, a narrative that helped crush AI stocks, which Situational Awareness was highly levered long on. The insinuation that Kenneth Griffin and Citadel purposefully pushed Situational Awareness into liquidation is something Mr. Griffin has a track record of doing before.
What comes next for AI and equities? Perhaps Wednesday gave us enough liquidation for a one-to-three-day rally, especially in memory and semiconductors. Ram Ahluwalia isn’t chasing, citing the “hot hand” effect and predicting semis could take a breather for the next couple of months. Flood counsels patience, arguing you’ll be rewarded for waiting rather than rushing in to buy the liquidation. On the other hand, Jim Bianco points out that the market usually starts finding a bottom when somebody finally blows up.
- He provided prior examples:
- “1998: LTCM
- 2018: Volmeggeon – XIV / short-vol unwind
- 2020: Treasury basis trade / forced deleveraging
- 2021: Archegos, more idiosyncratic, but same forced-liquidation pattern
- 2022: UK LDI pension/gilt crisis”
While Mr. Aschenbrenner’s Situational Awareness was one proximate cause of this week’s equity volatility, the other was Kevin Warsh’s Fed meeting. Anna Wong thinks Mr. Warsh is doing exactly what he set out to do, namely, let the long end rise during the intermeeting period, a move basically equivalent to a 25bp hike. Others were less kind, perceiving incompetence in Mr. Warsh’s communications, and warning that that perception needs reversing lest markets get spooked more significantly.
In other macroeconomic news, Michael Howell’s CrossBorder Capital asked whether a major deleveraging is already baked in as global liquidity dries up. And the promised U.S. manufacturing boom looks to have barely started, if it has at all. On Thursday, the Japanese Ministry of Finance undertook a yen intervention, buying yen to push the USDJPY pair from around 164 to as low as 158. So far, it’s been ineffectual.
Crypto news took an understandable back seat to tradfi and macro news this week, but there were still many newsworthy stories. Unfortunately, the biggest theme was not good. At least not ostensibly.
Crypto businesses continued to die. A week after BitMEX announced its closure, BitMart announced an “orderly wind-down” of its trading platform. It might not be so orderly, though, as BitMart is reportedly not processing withdrawals following its insolvency. Next up, Storj Labs filed for Chapter 11 bankruptcy after raising approximately $35 million, with STORJ down 98.3% from the top.
Those crypto companies alive and kicking are still battling the bear. COIN plunged over 7% after posting weaker than expected earnings. Early this week, Uphold announced it was cutting 17% of its staff. Here is a short recap on crypto staff cuts, which is a tell tale sign of a late stage bear market:
For the fourth consecutive week, Strategy increased its USD Reserve, this time by $525 million, achieving 2.1 years of dividend coverage, with 843,775 BTC in the reserve. The new twist: Strategy repurchased 288,930 shares of STRC for $25 million at an average price of $86.52, pledging to remain a “regular, disciplined buyer” below $100. So the loop is now: sell MSTR common, buy no Bitcoin, retire the preferreds. Critics call it a ponzi doom loop; Mr. Saylor calls it discipline.
Brian Armstrong doubled down on the agentic commerce narrative, saying there are only 8 billion humans on earth, but soon there could be 10x the amount of transacting agents. Mr. Armstrong also pushed back on the “pivot to AI” chorus, calling it zero-sum, scarcity thinking. Coinbase’s closely aligned corporate compatriot, Circle, acquired fundamental assets from IBM’s blockchain patent portfolio. Circle procured 680+ patent families, nearly 1,000 issued patents, making it the leading U.S. blockchain patent holder.
In defi, the success of Trade.xyz on Hyperliquid could be a liability. With Trades’ massive success, why wouldn’t they take all the fee profits for themselves? What happens if TradeXYZ launches its own chain? Similarly, one poster noticed that 90%+ of active Solana wallets directly interact with Pump.fun. What happens to Solana if Pump launches their own chain, and why wouldn’t they?
Speaking of Hyperliquid, an Axios-linked wallet on Hyperliquid is reportedly insider trading every oil headline, going 11 for 11, including a nine-figure short opened hours before the ceasefire proposal dropped. Prediction markets tightened insider-trading surveillance last week. Perp DEXs may need to take notes. Those are good problems to have, meanwhile most chains have little to no activity. Stani Kulechov announced Aave is deprecating 50 low-adoption asset reserves across multiple deployments and winding down on Sonic, Scroll, zkSync, Metis, Soneium, and Aptos.
Kyle Samani attacked his former firm, warning that if you’re building in the Solana ecosystem, Multicoin is working against everything you are building. Charles Hoskinson was asked about co-founding Ethereum for the twelve-thousandth time and did not take it well: 12 years and the same bullshit question… Move on. It’s old news. And CZ floated a modest proposal: give Satoshi a 12-month window to move his coins before a quantum upgrade, then freeze them.
In AI x crypto, Jason Calacanis has rediscovered Bittensor. Oh boy. He’s excited about the mode: Open source, open competition, vetted by validators. Barry Silbert cosigned: Mr. Calacanis gets it. Don’t sleep on Bittensor $TAO. Mr. Calacanis went further, reasoning that if Jensen Huang knows what Bittensor is and NVIDIA is engaging on any level, that’s worth watching. He then recommended friends buy one TAO as a $200 lottery ticket on a Bitcoin-like run and a vote for distributed, uncensored, sovereign AI. These VCs pounding the table on an altcoin has a poor historical record. Be careful, don’t be VC exit liquidity.
Finally, let me reiterate to be vigilant about the Coldcard exploit. Hopefully, for now, this is isolated to Coldcard, but AI is likely to enable many more such hacks from hardware wallets.
Self-custody is important, but does take a high level of personal responsibility. Stay safe out there, stay vigilant!
-David Sencil
