Weekly Top Stories - 10/17/25

In this week's newsletter, Alex Thorn considers the crash’s implications for this bull run’s longevity; Thad Pinakiewicz digs into the story of 127,000 BTC seized by the Feds; and Jianing Wu examines Wall Street firms’ latest steps toward crypto adoption.

Is ‘Uptober’ Still Happening? 🤔

Crypto flash crash dents “Uptober” rally. Last Friday’s crypto flash crash, which saw more than $19 billion in leveraged positions liquidated and some altcoins tank 50% to 75% in minutes, has cast a shadow on a month that had begun with bullish sentiment and fresh all-time highs for some major assets.

After reaching a new all-time high of $126,300 on Oct. 6, Bitcoin traded in the $121,000 area on the morning of Oct. 10 (U.S. hours) before briefly hitting a low of $107,000 that afternoon. While Ether last hit a new all-time high several weeks ago ($4,955 on Aug. 24), it had been trading at nearly $4,800 before the crash and dropped as low as $3,500. At the nadir of the crash, bitcoin was down 13% intraday, ether was off 20%, and SOL was down 25%. Some longer-tail altcoins dropped as much as 50% to 75% during the move.

As Galaxy Research’s Thad Pinakiewicz wrote on Wednesday, “high leverage combined with thin order book depth and one macro headline sparked the crash.” Exacerbating the move was auto-deleveraging (ADL) by exchanges, which in some cases limited market makers’ short positions, requiring them to pull back liquidity significantly. Ultimately, markets stabilized throughout Friday evening and recovered notably at the beginning of this week.

As the week wore on, though, risk appetite waned in the face of some softness in microchip stocks, hawkish language from Federal Reserve Governor Christopher Waller despite his prior dovishness, regional bank weakness, and President Trump’s commentary about his discussions with Russian President Vladimir Putin. Bitcoin is now trading consistently at its lowest level since June. Meanwhile, gold and silver have both made new all-time highs at more than $4,300 and $54 an ounce, respectively.

OUR TAKE:

Markets entered October feeling bullish, but halfway through the month, the footing feels decidedly more tenuous in crypto and equity markets. Bitcoin’s price is off 16% from its Oct. 6 all-time high of $126,200, while the S&P 500 is down 1.85% from its Oct. 8 all-time high of 6,735. Other cryptos have mostly fared worse than BTC. The risk-off attitude in October is further demonstrated by all-time highs in gold and silver, as well as the yield on the 10-year Treasury note falling below 4% for only the second time in over a year.

Probably the most notable factor underlying the risk-off attitude is anxiety about whether the AI-driven capex boom is in a bubble. Respected investor Paul Tudor Jones told CNBC last week that the current investment landscape “feels exactly like 1999” and that “all the ingredients are in place for some kind of blow off.” Others have criticized the circular nature of some announced AI deals, with chipmakers taking equity in hyperscalers concurrent to GPU purchases and vice versa, raising fears that share prices are elevated on insular dealmaking. However, this AI boom is being fueled by major investment-grade companies flush with hard cash, not just speculative fervor or circularity. Some examples include the $40 billion sale of Aligned Data Centers to a group led by BlackRock and Nvidia, Google’s massive deal with OpenAI and Coreweave, Meta’s recent $1.5 billion deal to build a new data center in Texas, Microsoft’s deal with Nscale, and many others. These are real money investments made by deep-pocketed incumbent players building for the future, not speculators chasing a vague dream.

While the government was supportive of internet growth in the 1990s, its support of AI in 2025 is notably more significant. Based on our analysis, in the 1990s, the U.S. government spent only a few hundred million dollars per year on internet-related R&D through programs like the High-Performance Computing and Communications initiative and the Next Generation Internet program. Even if we include the E-Rate initiative to connect schools and libraries, which spent about $2.25 billion but was funded by telecom fees rather than the federal budget, federal government investment would still have equaled roughly 0.1-0.2% of annual federal spending (or 0.03% of GDP). In contrast, in 2025, the federal government itself is spending $3.3 billion per year on AI R&D plus $45 billion in semiconductor and infrastructure incentives under the CHIPS Act, roughly 0.7% of the federal budget (or 0.15-0.2% of GDP), roughly 7x the annual spend on internet growth in the 1990s. And while the U.S. government primarily framed the internet buildout in the 1990s as an economic and educational opportunity, in 2025, the U.S. government has made explicit that the race to build artificial intelligence is a geopolitical priority, launching a national “AI action plan” and framing it in almost existential geopolitical terms. Competition between nations makes the growth of AI look more like a new Space Race than the makings of another dot-com bubble, in our opinion. And it very well could escalate into a new Manhattan Project, which peaked at 4-5% of annual federal spending (about 0.85% of GDP) in 1944. It’s not a stretch to think AI could be an arms race at that level — AGI could be at stake, and whichever nation achieves it first could determine the global balance of power for decades or more. All this to say, the government’s posture looks decidedly more aggressive in support of AI today than it did for the internet in the 1990s, leading into the dot-com bubble, and it could become even more aggressive still.

Given the magnitude of AI’s potential, like the rise of the internet, it’s impossible to quantify the market impact as it grows and permeates across the global economy. While 2000 did see the popping of a “dot com bubble,” it amounted to only a local top, and even those who bought the S&P 500 at its peak would be deeply in the green if they’d held until today. The point is, giant structural innovations create exuberance, and exuberance can lead to bubbles. But if the exuberance is justified, it usually ends well, even if the path is rocky. We believe AI’s impact on the economy is still in the very early stages, and that there’s much more capex to be spent, energy to be harnessed, and infrastructure to be built to realize its eventual game-changing future.

Crypto in some ways has been caught up in this anxiety, though it has also been subject to its own market pressures. Most recently, last Friday’s flash crash has put a meaningful dent in asset prices, creating a short-term price regime characterized by fragility and reticence. But over the last few months, enthusiasm for digital asset treasury companies (DATs) has also eroded, with the nascent sector as a whole broadly trading lower. Whether the “bubble has burst” (as Bitmine Chairman Tom Lee said on Thursday), we do not know, but possible investor fatigue has led to lower equity prices. With equity prices down, these firms’ abilities to raise funds have also declined, thus diminishing the amount of structural and price-insensitive crypto buying power able to be deployed.

Nonetheless, we continue to view the market setup for digital assets as still quite constructive. Bitcoin remains well-positioned as digital gold to capitalize on fundamental doubt about government fiscal and monetary prudence, while the rise of tokenization and stablecoins, coupled with an extremely favorable U.S. regulatory outlook, should buoy the prospects of other important digital assets like ETH and SOL.

The old phrase is that “markets climb a wall of worry.” We have been climbing, and there is certainly worry. Does that mean we’re doing it right? Maybe—but if this is what “Uptober” looks like, November’s PR team may have work to do.. – Alex Thorn

Uncle Sam’s Bitcoin Pile Grows 64% Overnight 🥞

In what might be the starkest illustration ever of the adage “crime doesn’t pay,” the U.S. Department of Justice pulled off its largest-ever asset forfeiture, seizing 127,271 bitcoin worth nearly $15 billion. The indictment reads like a hybrid between a Netflix “Narcos” teleplay and a Chainalysis case study.

The case centers on Chen Zhi, the chairman of Cambodia’s Prince Holding Group, whom prosecutors accuse of running a vertically integrated criminal conglomerate that spanned online gambling, forced-labor compounds, and “pig-butchering” investment scams. Prosecutors allege that Chen and his associates laundered billions in illicit proceeds through a network of front businesses, notably among them large-scale cryptocurrency mining operations. Two of the names stand out: Warp Data, a Laos-based facility with a Texas subsidiary, and LuBian, a Chinese mining company whose name has been popping up in crypto forensics reports for years.

LuBian isn’t just another opaque Chinese miner. In 2020, it suffered one of the largest private-key compromises ever recorded. LuBian’s wallets were generated with software that had a catastrophic fault in entropy, nicknamed “Milk Sad,” that allowed unknown attackers to siphon off an estimated 127,000 BTC. While Lubian never publicly confirmed that it was the victim of a hack, it appears to have spent ~1.4 BTC sending OP_RETURN messages to the exploiter wallets requesting their bitcoin back.

This is where things get strange. In the indictment, the DOJ lists a series of wallets for which Chen “personally maintained records of the wallet addresses and seed phrases associated with the private keys for each.” This list matches 1-for-1 the list of addresses identified by the Distrust cybersecurity team as weak-entropy wallets associated with Lubian.com that fell victim to the 2020 “exploit.” Interestingly enough, while these are the only wallets mentioned in the indictment, they had nearly zero bitcoin in them at the time of seizure. The 127,271 seized BTC came almost exclusively from wallets associated with the Lubian.com exploiter.

OUR TAKE:

The timing is eerie, the denominations line up, and the on-chain analysis makes a compelling case that the Prince Group and LuBian were never separate at all, but two arms of the same organization. The same people who ran scam pig-butchering compounds and offshore casinos likely owned or controlled the mining operation that “lost” its bitcoin in 2020. Whether the theft was an inside job, a faked hack to bury proceeds and claim tax losses, or Prince Group strong-arming LuBian, the net effect is the same. The DOJ found the keys, which the feds claim Chen possessed. That alone reduces the odds of this being a state-level crypto-forensics miracle; it was less “NSA cracks Bitcoin” and more “FBI got into your cloud drive.” Chen is on the lam, with $1.8b worth of bitcoin in his newly OFAC-sanctioned addresses, and potentially an additional $1.8b in bitcoin in wallets tagged to Lubian that moved funds immediately after the Prince Group indictment was unsealed. This interplay of unclear ownership raises thorny questions. It appears LuBian was operated by Chen and the Prince Group, but LuBian is notably missing from the OFAC sanctions on the case, and the indictment is not explicit in saying that LuBian was owned by the Prince Group. If you’re LuBian, you might even imagine filing a claim: “Those coins were ours, we were hacked, we want restitution.” Except that you’re a Chinese-registered miner accused of laundering criminal proceeds through a Cambodian conglomerate (which may own you), and the U.S.-China trade relationship is currently in a full transactional freeze. The chance of a federal judge ordering Treasury to hand back $15 billion in bitcoin to a mainland entity is somewhere between slim and zero. The timing also dovetails neatly with Washington’s new fiscal narrative. Since March, the administration has authorized the Treasury to retain seized digital assets as part of a Strategic Bitcoin Reserve, a budget-neutral mechanism meant to complement gold holdings with “digital hard money.” With the Prince Group seizure, that reserve just grew 64% overnight, reaching ~3.5% of the U.S. gold stockpile in dollar terms. And with that, the U.S. government now owns more bitcoin than any single entity other than Michael Saylor’s Strategy. The DOJ doesn’t sell BTC anymore; it holds (at least that’s what the President’s March 6 Executive Order demands). Enforcement has become an accumulation. Uncle Sam is long bitcoin. Bitcoin, born as a rebellion against fiat, is slowly becoming part of fiat’s collateral stack. The cypherpunks should probably pour one out for irony: the revolution got confiscated, and then it got booked under “Inventory.” – Thad Pinakiewicz

Wall Street Keeps Warming to Crypto 🏛️

On Oct. 10, Morgan Stanley removed longstanding restrictions on crypto fund access for its financial advisors, allowing them to allocate digital assets to all clients across any account type. Advisors can now proactively recommend crypto investments, a privilege previously limited to high-net-worth investors with elevated risk tolerances. In its newest published report, the firm suggested clients allocate up to 4% of portfolios to digital assets, a conservative but nontrivial endorsement from one of the largest U.S. wirehouses. The report framed the asset class as both a hedge against inflation and a long-term growth opportunity.

In a similar shift, Vanguard, the $11 trillion asset manager, is reportedly preparing to offer select third-party crypto ETFs to its brokerage clients, a significant reversal for a firm historically skeptical of digital assets. The move appears driven by strong client demand and a more supportive regulatory climate, though Vanguard has not yet announced a specific timeline or which ETFs will be made available.

Meanwhile, Citi said Monday it plans to launch institutional-grade crypto custody in 2026, following two to three years of development. That same day, JPMorgan also signaled that its clients will soon be able to trade bitcoin and other crypto assets, though custody services are not yet planned. These moves show banks preparing for and beginning to capture the crypto opportunity, using their own integrated trading, custody, and advisory systems to open regulated access to digital assets.

OUR TAKE:

The wealth channel is one of the last remaining distribution bottlenecks in U.S. financial markets for digital assets. It encompasses roughly 300,000 financial advisors managing about $30 trillion in client assets. If even a modest 2% allocation to bitcoin ETFs emerged across this channel, that would translate to roughly $600 billion in potential inflows, a figure comparable to the entire global gold ETF market (~$472 billion) and more than 3× the U.S. spot bitcoin ETF AUM (~$146 billion). For those unfamiliar with the channel, financial advisors within wealth management platforms manage portfolios for a wide range of clients, including individuals, families, trusts, and institutions, but they can only allocate to products formally approved by their firms. These approvals depend on factors such as custody readiness, compliance frameworks, operational integration, and client suitability standards. Approval of crypto products has been especially cautious due to crypto’s volatility, evolving regulation, and relatively limited track record. The barriers to crypto access in wealth management are now beginning to ease. As institutional adoption accelerates, particularly in a more pro-crypto regulatory environment, banks are building their own custody and trading infrastructure, which serves as the critical backbone needed to close the loop internally and offer secure, scalable crypto access through their wealth platforms. The Trump administration’s recent executive order allowing 401(k) plans to include crypto as an option has added further legitimacy, helping wealth channels grow more comfortable with crypto’s risk profile. Over the past year, major asset managers such as BlackRock, Fidelity, Bridgewater’s Ray Dalio, and Ric Edelman have publicly suggested crypto allocations ranging from a conservative 1% to as high as 40% in aggressive scenarios. Now, with Morgan Stanley, Vanguard, and other wirehouses entering the field, crypto exposure is progressively integrating into mainstream wealth management. Once the large advisory platforms fully open access to crypto ETFs, financial advisors will be able to integrate crypto directly into traditional balanced portfolios. This shift represents a change in how digital assets are distributed: moving from retail-driven speculation to advisor-led portfolio construction. The impact could be substantial. New inflows may follow as wealth managers begin allocating to the asset class, potentially pushing total bitcoin ETF AUM to $500 billion within a few years, assuming just a 1% average allocation across managed portfolios. Such flows would reshape market dynamics and reinforce bitcoin’s position as a mainstream, investable asset. At the same time, advisory compliance frameworks will make these allocations more permanent and disciplined, reducing the impulsive turnover often seen in retail trading. The result could be greater price stability and deeper market maturity, as long-term holdings replace short-term speculation. In effect, the opening of the wealth channel could mark the point where crypto transitions from a niche investment to a standard portfolio component, alongside equities, bonds, and gold. – Jianing Wu

Chart of the Week

During last week’s flash crash, several cryptocurrencies that normally trade at 1:1 with their reference assets lost their pegs, with the sharpest breaks on Binance. These included USDe, wBETH, wBTC, and BNSOL. The depeg was amplified by an exchange software failure and limited liquidity on Binance, where USDe, which is supposed to hold its value against the U.S. dollar, sank almost to 65 cents. In contrast, USDe held closer to parity on Bybit (about $0.94) and on decentralized venues such as Curve (about $0.99), reflecting deeper liquidity and the absence of software issues on those platforms.

Some have attributed the severity of the Binance depeg to elevated leverage there, but Bybit recorded roughly 33% more liquidations while experiencing a much smaller depeg. Higher liquidations indicate higher leverage, suggesting this was not the factor that exacerbated the depegs on Binance.

At 20:50 UTC on Oct. 10, President Trump posted that the U.S. would impose a 100% tariff on China, triggering a cascade of leveraged liquidations most felt on Hyperliquid, Bybit, and Binance. The selloff accelerated as sell orders hit thin order books, prices fell rapidly, liquidity thinned, and many stop-loss orders did not execute, which pushed prices lower still. Users reported that Binance’s website was unresponsive, leaving traders unable to place orders. Binance later confirmed the issue. Further, Binance values positions using internal index and mark prices rather than on-chain oracles; any degradation in those feeds can widen divergence from the rest of the market and hasten venue-specific liquidations. Together, these factors produced the rapid depeg on Binance.

Between 21:42 and 21:51 UTC on Oct. 10, USDe bottomed near $0.65 on Binance amid the rapid liquidation cascade. Other pegged assets on the exchange sold off aggressively: wBETH fell about 68% from the spot price for ether in under two minutes, BNSOL diverged about 70% from SOL over the next seven minutes, and wBTC fell about 9.8% from bitcoin.

When the dust settled, leveraged liquidations across venues totaled about $19 billion, and the Binance depegs returned to par. Binance said its systems resumed operating normally and have reimbursed users about $728 million, nearly half of the $1.39 billion in liquidations that transpired on its venue. — Christopher Rosa

Other News

🛠️Bitcoin Core Releases v30; Ethereum Fusaka Upgrade Deployed to Sepolia Testnet

✅Crypto-Focused Erebor Bank Approved for U.S. Charter

☕Square Enables Bitcoin Payment at U.S. Coffee Chain

🤝Ripple Acquires a Treasury Management Firm for $1b...

🦑... and Kraken Buys Small Exchange (That’s Its Name) for $100m

🧠 BlackRock Retools Money Market Fund for GENIUS Stablecoins

🙃 Paxos Mistakenly Issues $300t (Yes, Trillion) of PayPal Stablecoin

🏢 Corporate Bitcoin Holdings Reach New Highs

💶 French Banking Giant ODDO BHF Launches Euro-Backed Stablecoin

🏛️ GOP Bill Would Codify Trump’s Crypto 401(k) Order