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Billions flowing out of bitcoin ETFs and private credit funds suggest rising market risks

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Average requests rose to 10.3% of shares from 9.7% in Q1, but ranged widely (1.3%–38.1% at Blue Owl’s OTIC), Fitch said. Many requests were follow-ups from investors who were only partly satisfied last quarter. New inflows fell by about 56% on average, so most funds saw net outflows of roughly 3% of the prior quarter’s net asset value.

What’s concerning, for private credit, is that Fitch expects continued redemptions in the months ahead.

“With BDCs capping redemptions at 5% quarterly, unfulfilled requests will lead to persistent elevated redemptions for many firms in the coming quarters,” ratings agency Fitch warned,” the ratings agency said.

Same story, different structures

Bitcoin ETFs are liquid, exchange-traded vehicles, where outflows directly impact the spot price of BTC. Private credit BDCs are the opposite: illiquid, long-duration lending vehicles with built-in quarterly gates.

Still, the fact that investors rushed for exit in both at the same time does point to broader caution around liquidity and risk appetite.

Amid all this, energy markets continue to send risk-off signals, with the U.S. Strategic Petroleum Reserve at its lowest level since 1983. So, if the energy market remains disrupted, the government now has significantly less buffer to flood the market with oil and keep prices lower.

Gauntlet Raises $125M Series C From SBI Holdings

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SBI Holdings was the sole investor in the round, which Gauntlet says will fund expansion into stablecoins, tokenization and traditional capital markets infrastructure.

Gauntlet, a DeFi risk management and vault curation firm with $1.42 billion in assets under advisement, closed a $125 million Series C funding round with SBI Holdings, the Japanese financial conglomerate, as the sole investor, Gauntlet said on X Thursday.

The firm, founded by chief executive Tarun Chitra, said the capital will fund “building our infrastructure across traditional capital markets, expanding stablecoin coverage, and accelerating new onchain offerings.” Gauntlet said it aims to provide “quantitative guardrails” as institutions move capital onchain.

Gauntlet was last valued at $1 billion in 2022, when it raised roughly $24 million in a Series B round. Gauntlet did not disclose a post-money valuation for the Series C. The firm currently curates $1.42 billion across chains including Base, BNB Chain and Ethereum, according to DefiLlama.

Chitra said he expects tokenization and vault products to grow DeFi’s market faster than overall stablecoin growth over the next few years. SBI Holdings, a Tokyo-based financial services group with existing crypto and banking ventures, is backing the round as part of a broader push to link traditional finance with digital-asset infrastructure.

The triage is the product: running AI agents against Ethereum’s protocol code

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Notes from the Ethereum Foundation’s Protocol Security team on running coordinated AI agents against real protocol code, including how we organize the work, what holds up under scrutiny, and what client teams and security researchers can take from it. This post stands on its own; later posts will go deeper on individual clients.

What we’ve been running, and what surprised us

On the Ethereum Foundation’s Protocol Security team, we’ve been running coordinated AI agents against the kinds of systems the network depends on, like systems software, cryptographic code, and contracts that have to be right. The agents found real bugs. One is now public: a remotely-triggerable panic in libp2p’s gossipsub, a core part of the peer-to-peer layer Ethereum consensus clients run on, fixed and disclosed as CVE-2026-34219 with credit to the team.

Agents finding bugs wasn’t the surprise. The surprise was how little of the work went into finding them, and how much went into telling the real bugs from the ones that just looked real.

This post is for client teams and security researchers who want to do the same thing. It covers how we organize the agents, the bar a candidate has to clear before it counts as a finding, and the habits that keep the results trustworthy.

Teams elsewhere are converging on the same recipe. Anthropic’s Frontier Red Team built an agent that writes property-based tests and found real bugs across the Python ecosystem. Cloudflare ran a frontier model through a security-research harness against their own systems. Everyone lands on the same loop: point a capable model at a codebase, let it search, and triage what comes back. So the real question is how to do this without drowning in confident-sounding noise.

One caveat up front: tooling for agent-driven audits moves fast, and any specific setup is out of date in a few weeks. So this post is deliberately about the methods, which are persistent, rather than the tooling. Disclosure is its own topic and will probably be its own post.

An agent pointed at a codebase is a search tool, a lot like a fuzzer. The difference is what comes back. A fuzzer hands you a crash and a stack trace. An agent hands you a lot more, including a write-up (call chain, impact claim, suggested severity) and the artifacts to back it, like a proof-of-concept you can run against the real code.

All of that makes the result easy to read and easy to trust, the running proof-of-concept most of all. So don’t count how many candidates an agent produces. Count how many turn out to be real.

How the work is organized

We run many agents in parallel against one target. They coordinate through the repository itself, with shared state in version control and no central process handing out work. An agent writes down a claim where the others can see it, does the work, and commits.

We got this approach from Anthropic’s writeup on building a C compiler with a fleet of agents, which coordinates the same way. There’s no central coordinator to build or maintain, and less that can go wrong.

The roles are generated by the work that’s discovered:

  • Recon turns an attack surface into concrete, testable hypotheses. Not “audit the decoder” but “this field is trusted past this point; here’s the property it should keep, the way it might break, and the proof that would settle it.”
  • Hunting takes one hypothesis, traces the code path, and tries to build a reproducer.
  • Gap-filling looks at what was accepted and what was rejected, writes the next batch of hypotheses, and tracks coverage so the agents don’t keep going over the same ground.
  • Validation re-checks each candidate independently, removes duplicates, and decides.

We didn’t invent this pipeline. Cloudflare describes the same stages, recon, parallel hunting, independent validation, deduplication, reporting, and their writeup helped shape ours.

Here’s what a candidate looks like before it counts as a finding:

target:      component and entry point an attacker can actually reach
invariant:   the property that must hold
mechanism:   the specific way it might be made to break
success:     observable proof: a panic, a stall, an accepted-invalid input
reproducer:  a self-contained artifact that runs against the real code
dedup:       a key, so two agents don't chase the same thing

The schema is there for a reason. It forces a specific, testable claim and a clear definition of done. An agent that has to write down an observable proof can’t fall back on “this looks risky.”

Reproducible or it didn’t happen

One rule matters more than any other. A candidate isn’t a finding until there’s a self-contained artifact that reproduces the failure against the real code, and that runs for someone who didn’t write it.

The reproducer doesn’t read the write-up, and it doesn’t care how confident the model sounded. It either runs or it doesn’t.

Most of its value is in the false positives it catches. Three of them come up over and over, and each one is the agent getting a pass for the wrong reason:

  • A panic that only happens in a debug build. Compile and run it the way the software actually ships, and the value just wraps around. Nothing crashes. It looks like a crash, but it isn’t one.
  • A reproducer that builds some internal value by hand, one no real input could ever produce, because every path an attacker controls rejects it earlier. The bug only “reproduces” against a function that nothing reachable calls that way.
  • In formal-verification work, a proof that goes through but doesn’t mean what you wanted. The statement is trivially true regardless of what the code does, or it’s weaker than the property you meant to capture. The verifier is satisfied, but the theorem doesn’t constrain the behavior you actually cared about.

None of this is new. It’s the same thing as a test that passes because it doesn’t actually check anything. What’s new is the volume. An agent writes the useless version as fast as the real one, and just as confidently. So the check has to be automatic. You can’t count on the agent to catch itself.

Signal-to-noise is most of the work

Most candidates are wrong, duplicate, or out of scope. That’s not a problem with the method; that’s how it works. The goal is to reject the wrong ones fast and back the real ones with proof that’s hard to argue with.

Every candidate that survives gets two independent checks. Can a real attacker actually reach it in a normal configuration? And what does it cost the attacker to pull off, compared to what it costs the network if it works? A bug that any single peer can trigger is very different from one that needs special access or a huge amount of resources.

Everything gets checked against a running list of what’s already known, fixed, or rejected. Without that, the agents keep rediscovering the same closed issue and reporting it again and again.

Acceptance rates vary a lot from target to target, and that variation is useful on its own. Run this against mature, heavily audited code and almost nothing survives, which is still worth knowing. “We looked hard and found nothing” is a real result. Run it against less-explored code, or against formally verified code, where a machine-checked proof covers a model and the deployed bytecode is only assumed to match it, and more gets through.

We’re not the only ones who found that the triage is the hard part. Cloudflare’s main takeaway was that a narrow scope beats broad scanning. Anthropic’s property-based-testing agent generated something like a thousand candidate reports, then used ranking and expert review to get down to a top tier that held up about 86 percent of the time. The generation was the easy part. I’m not going to publish our own numbers here; tied to a specific target, they’d say more about the target than about the method.

What the agents are good at, and where they mislead

There’s hype in both directions, so here’s a plain list of what the agents do well and where they mislead.

Good at Misleading at
Reading the spec and the code together Call chains that look reachable but aren’t
Stating and checking a real invariant Gaming the success check (a pass for the wrong reason).
Drafting a reproducer from a one-line idea Inflating severity to match how dramatic the write-up sounds
Suggesting a root cause before you’ve looked Bugs that span a sequence of valid steps

The split isn’t even steady from one task to the next. Stanislav Fort, testing a range of models on real vulnerabilities, calls this a jagged frontier, or a model that recovers a full exploit chain on one codebase can fail basic data-flow tracing on another. You can’t assume one good result means the next will hold up, which is another reason every candidate gets checked on its own.

The last row is the important one. A single agent session is good at one-shot reasoning and bad at bugs that span a sequence of steps, where each step is valid and only the order is wrong. For those, the agent isn’t the search tool. Its job is to suggest which sequences are worth running through a stateful test harness. Used that way, it works well. Used as a replacement for the harness, it misses the most expensive bugs there are, the ones that only show up across a sequence.

Keeping it honest

A few habits do most of the work of making agent findings trustworthy, and none of them are complicated.

  • Provenance on every artifact: what produced it, with what context, against which revision. A finding should be something you can re-run months later.
  • Determinism where it counts: one environment, one way to build and run, so “reproduces” means the same thing on every machine, not just the one where it was found.
  • Norms, not scripts: tell agents what matters, the invariants and the bar for a real finding, instead of a numbered procedure. Over-scripted agents break the same way over-specified tests do, they keep following the steps after the steps stop making sense. A study of repository context files found the same thing: the extra requirements lowered task success and raised cost by over 20%, and the authors recommend keeping context to the minimal requirements.
  • A person makes the final call: agents suggest. They don’t decide what’s real, what’s a duplicate of a known issue, or what gets disclosed and when.

The bottleneck moved

AI didn’t replace the security researcher. It moved the work. The time that used to go into coming up with and chasing down hypotheses now goes into judging them at scale, including building the oracle, running the triage, keeping the list of known issues, and handling disclosure.

The bottleneck didn’t go away. It moved from finding bugs to trusting the results, which is a better place for it, because that’s where human judgment actually matters. But it’s still a bottleneck, and ignoring that is how you end up shipping a wrong “it’s fine.”

The practices that make this work aren’t new. Reproducible failures, real oracles, and careful triage are the same practices that turned fuzzing from a research topic into standard practice over the last fifteen years. The tools are new. The practices aren’t.

How fast the tools keep changing is an open question. Nicholas Carlini, careful and once a skeptic himself, argues the exponential case is worth taking seriously, even while he keeps wide error bars on it. If the generation side climbs that fast, the judgment side has to climb with it, or the gap between what gets produced and what actually gets verified only widens.

For the systems Ethereum depends on, that’s the part that matters. Agents let us cover far more ground than we could by hand. In exchange, they ask for more careful judgment, across a much bigger pile of confident-sounding claims. That’s a trade worth making, as long as you remember that the judgment is the real product.

Bitcoin Reclaims 63k but Traders Fear Correction Before Deribit Expiry

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Bitcoin (BTC) reclaimed the $63,000 mark on Thursday, but traders fear a correction ahead of Friday’s $1.4 billion options expiry on Deribit. The concerns stem from the US government bond yield climbing toward a level that many view as a warning sign. Is the $62,000 support level at risk?

Key takeaways:

  • Rising US Treasury yields signal debt concerns, negatively pressuring risk assets.
  • Balanced Bitcoin options put-to-call volumes suggest limited downside from the $62,000 level.

US 10-year Treasury yield (left) vs. Bitcoin/USD (right). Source: TradingView

Bitcoin ETF outflows are not a concern ahead of the Bitcoin options expiry

The 10-year Treasury yield’s approach to 4.6% signals investor anxiety over the expansion of US government debt and prospects for further monetary policy expansion to avert an economic recession. Bitcoin has felt the impact, trading sideways while the Nasdaq-100 Index sits merely 4% below its all-time high.

The AI sector’s bullish momentum keeps pulling capital toward equities. Asian chipmaker SK Hynix oversubscribed IPO in the US helped push the sector higher on Thursday, led by Arm Holdings (ARM) 10% gains, Advanced Micro Devices (AMD) 7% rally and Micron’s 7% intraday gains.

Wednesday brought $85 million in net outflows from spot Bitcoin ETFs, ending a short three-day inflow run. Still, the figure does not confirm a reversal in institutional flows. More importantly, demand for Bitcoin options has stayed balanced between calls (buy) and puts (sell).

Bitcoin options put-to-call volumes ratio at Deribit. Source: Laevitas

Call options volume has outpaced put instruments over the past four days, reflecting reduced demand for downside movements. However, the upcoming weekly options expiry features an interesting setup as calls up to $62,500 total $137 million, while puts above $61,000 are at $121 million.

Deribit BTC options open interest for July 10, BTC. Source: Deribit

Bitcoin bulls would gain significant ground with a move above $63,500 by the 8:00 AM UTC expiry on Friday, boosting their advantage to $190 million. Bears hold a smaller $100 million edge below $61,000, limiting their incentive without additional catalysts.

Oil price decline could strengthen the demand for risk-on assets

A temporary truce in the Middle East could ease recession fears and shift money from fixed income into risk markets, likely pushing Bitcoin price higher. In contrast, continued strength in the AI sector drains capital from other investments while traders fear large Treasury issuance to cover growing debt.

Related: Bitcoin peels back to $62K as Fed-wary futures traders cut risk: Is the BTC rally over?

Crude WTI oil futures (left) vs. Nasdaq 100 Index futures (right). Source: TradingView

Traders should closely monitor whether Treasury yields will subside over the next week and if an aggravated war in Iran pushes oil prices higher. But with Bitcoin put options buying remaining restrained in recent sessions, the market appears positioned to strengthen the $62,000 support level.

Bitcoin sits in a delicate spot where a successful expiry resolution above $63,500 could provide short-term relief, but sustained upward momentum would require a boost from the macro side. As long as these dynamics persist, the odds favor limited bullish momentum for Bitcoin in the near term.

UK Politicians Considering Permanent Crypto Donation Ban Amid Nigel Farage Scandal

Members of the UK’s ruling Labour party are considering a total ban on digital asset donations in response to Nigel Farage’s resignation from Parliament and the potential influence crypto billionaires had on his policies.

The Guardian reported Thursday that Labour MPs are looking to overhaul existing rules on donations to political parties and candidates. Specifically, lawmakers have proposed that a moratorium on crypto donations enacted in March be made permanent after it was revealed that the Reform leader personally accepted millions of British pounds in what he called “gifts” from industry figures.

“Amendments to the representation of the people bill which my colleagues and I have tabled are vital safeguards against the wider threat that’s seen [$268 million] come flooding in to build a whole media political complex behind populists in Britain,” said Liam Byrne, MP for Birmingham Hodge Hill and Solihull North and the Labour chair of the business select committee calling for a permanent crypto donation ban. “We simply cannot afford to let our crumbling defenses be undermined any further.”

Source: Liam Byrne

UK lawmakers will reportedly consider amendments to the crypto donation measures next week. Farage announced on Tuesday that he would resign as MP for Clacton in response to reports of the contributions, which included a $6.7 million “gift” from crypto billionaire Christopher Harborne and staff, security, transport and accommodation by George Cottrell, a convicted fraudster involved in a crypto casino.

Farage confirmed in his resignation speech that the UK’s parliamentary standards commissioner was investigating the donations, but said that he did “nothing wrong.” 

Related: Bank of England governor denies Farage lobbying swayed CBDC policy: Report

The Reform UK leader’s resignation has automatically triggered a by-election in the area, where he said “the people of Clacton should be the judges of my actions.” However, the major political parties, including Labour, Conservatives, Liberal Democrats and Greens will reportedly not field candidates for the by-election, with UK Prime Minister Keir Starmer calling Farage’s resignation a “desperate stunt.”

Former Manchester mayor on track to be next UK PM

Andy Burnham, a UK Labour lawmaker who recently won a by-election to become an MP representing Makerfield, is expected to be the country’s next prime minister following Starmer’s resignation. On Thursday, the week-long window opened for Labour MPs to nominate candidates for the party’s next leader, who would also become prime minister.

As mayor of Greater Manchester, Burnham advocated for the city to be a “Web3 powerhouse” and supported using digital technology as an economic development tool. If he receives enough support from Labour MPs to win a leadership bid, he could address the crypto donation ban and the Financial Conduct Authority’s oversight of the industry.

Magazine: Crypto industry looks to stablecoins and DeFi revisions in MiCA 2.0

Summer.fi Hacker Moves $1.35M Into Tornado Cash

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Summer.fi’s own post-mortem confirms the attacker began laundering the $6M haul through the mixer, calling it a sign of “limited intent to return the funds voluntarily.”

The attacker behind the $6 million Summer.fi exploit has begun laundering the stolen funds, moving roughly $1.35 million in DAI through Tornado Cash, the sanctioned crypto mixer, according to Summer.fi’s own post-mortem of the July 6 attack.

Summer.fi, the front-end for the Lazy Summer Protocol, said the attacker “swapped a portion of the proceeds and routed them through Tornado Cash… via an intermediary wallet (0x46e0…eBa7),” adding that the move “signals limited intent to return the funds voluntarily.”

Laundering Trail

Onchain Lens via Odaily, reported the exploiter’s wallet received 6.017 million DAI from the attack and has since moved 1.35 million DAI, swapping it for ETH on Uniswap before sending it through the same intermediary wallet into Tornado Cash. The original wallet still holds about 4.67 million DAI, while the intermediary wallet holds 50 ETH, per the report.

The exploit itself drained roughly $6.04 million from two Lazy Summer USDC vaults on Ethereum on July 6, after an attacker manipulated vault share pricing using a stale-valued token position built up over three months, Summer.fi said. The Defiant previously covered the initial exploit.

Summer.fi said its security partners, including SEAL 911, are continuing to trace the funds but that tracing “breaks down” once assets are swapped out of stablecoins and deposited into a mixer. The protocol publicly named the attacker’s funder and beneficiary wallet, 0x7BF7…BDCa, “so the community and exchanges can flag associated activity.”

Roughly 4.67 million DAI of the original haul remains untouched in the exploiter’s primary wallet, leaving open whether further funds will move through Tornado Cash.

New Hampshire Council Rejects $100 Million Bitcoin-Backed Bond

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The New Hampshire Executive Council rejected a plan on Wednesday to authorize a $100 million bond backed by Bitcoin, killing a proposal that state officials had cast as a first-in-the-nation bid to draw digital finance to the Granite State.

The New Hampshire councilors voted 3-2 against it, according to reporting from The Boston Globe.

The New Hampshire Business Finance Authority and Governor Kelly Ayotte had promoted the bond as “groundbreaking” and “historic.” The deal would have stood as the world’s first Bitcoin-backed municipal bond. The plan had cleared Moody’s ratings and reached the Executive Council for its final vote before issuance.

The council did not share that enthusiasm. Karen Liot Hill, the lone Democrat, framed her opposition as caution rather than hostility. 

“I’m not opposed to Bitcoin or cryptocurrency in general,” she told The Boston Globe. “But I do think that we are being asked as a state to lend a kind of legitimacy to a financial transaction, which is from … an emerging asset class that has been shown to be very volatile.”

Bitcoin is ‘emerged’

James Key-Wallace, executive director of the Business Finance Authority, disputed the framing. “The only quibble I would have is … I wouldn’t call them ’emerging,’” he said. “They’ve ’emerged.’ They’re here.”

Key-Wallace stressed that the bond carried zero risk for New Hampshire taxpayers. The loan agreement would create a conduit between private investors and a private borrower, with cryptocurrency as collateral. 

The state would owe nothing, even in a Bitcoin crash. Should Bitcoin climb across the three-year term, the authority could collect millions in fees for small business, child care, housing, and economic development programs. He said the deal could lead to “several more.”

Ayotte, who last year signed a law giving the state treasurer discretion to invest in Bitcoin and made New Hampshire the first state to pass a strategic Bitcoin reserve into law, defended the value of moving first. 

“I think it’s something that we really need to think about,” she said, “because our state continues to thrive when we are continuing to be innovative — and especially if we can do so in a way that protects the taxpayers.”

Liot Hill moved to table the proposal, but no colleague seconded the motion, a silence that sent the plan to its final vote. Janet Stevens and David Wheeler joined her in opposition. Joseph Kenney and John Stephen voted in favor.

Key-Wallace said his team remains excited about the state’s role in the digital asset economy, and he offered to present the idea to the council in the future.

PayPal’s PYUSD Goes Native on Polygon, Joins Open Money Stack

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Paxos, the OCC-regulated issuer of PYUSD, said the stablecoin will now settle directly on Polygon rather than moving there as a bridged token.

PayPal USD is now issued natively on Polygon and integrated into the network’s Open Money Stack, Polygon’s official account said Thursday. Paxos, the stablecoin’s issuer, confirmed the move the same day.

“PYUSD, the OCC-regulated stablecoin issued by Paxos, is now available on [Polygon] and the Open Money Stack,” Paxos said in a post on its official X account. Polygon said it settles more than $2.5 billion in stablecoin volume daily and has moved over $2.6 trillion in stablecoins onchain in total, according to its own thread.

Native Issuance, Not a Bridge

Native issuance means PYUSD on Polygon will be minted directly by Paxos rather than moved over as a wrapped or bridged token, a distinction Polygon emphasized in its announcement. The chain’s Open Money Stack bundles payins, payouts, wallets and crosschain orchestration into what Polygon calls a single API for end-to-end payments.

Polygon said “customers will soon be able to build with native PYUSD, to take money in, move it across borders, and cash it out in one integration,” per the same thread. Neither company gave a firm date for when those integrations go live.

A Small Slice of a $2.8B Token

PYUSD’s total circulating supply stands at $2.83 billion across 19 chains, with Ethereum holding 64.6% and Solana 24.7%, according to DefiLlama. Polygon currently accounts for just $10.13 million, or 0.4% of supply, making Thursday’s move a bet on future distribution rather than a reflection of existing volume.

The expansion follows PayPal’s earlier rollout of PYUSD to Solana in May 2024, part of a broader multichain push that has also included Arbitrum and Ethereum’s own rails.

Cipher, TeraWulf among AI infrastructure stocks trading below contract value, Compass Point argues

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Using that approach, the firm said Applied Digital (APLD), TeraWulf (WULF) and Cipher Mining (CIFR) appear to offer the largest disconnect between their contracted business and current valuations. In each case, Compass Point argues the market is assigning little, if any, value to additional AI capacity that has yet to be leased, despite the potential for those projects to generate significant rental income once completed.

Core Scientific (CORZ) and Riot Platforms (RIOT) stand out for different reasons. Compass Point said Core Scientific’s existing contracts are already largely reflected in its valuation, meaning further upside will likely depend on signing new customers. Riot, meanwhile, is valued more on future potential than current lease income, with investors placing a premium on its Corsicana campus and broader AI development pipeline despite its relatively limited contracted capacity today.

The report argues the next two years will be a turning point for the sector as companies shift from announcing AI infrastructure deals to delivering them. As projects are completed, tenants move in and rent payments begin, investors will have a clearer picture of the recurring cash flow these facilities can generate. Companies that execute successfully could be rewarded with valuations more in line with other income-producing infrastructure assets.

Fed May Buy Equity ETFs To Support US Stocks, Analyst Says

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Crypto markets could benefit from increased liquidity if the US central bank steps in to support the $75 trillion equity market in a bear market, as it is “too big and too important to fail,” according to analysts.

The US equity market has grown by 68% over the past five years and has added roughly $6 trillion in market value so far this year. However, analysts and experts, such as goldbug Peter Schiff, have warned that years of rapid growth could be setting up the market for a major correction.

Such a correction could see the Fed “break decades of precedent” and buy equity ETFs to support the stock market, Bloomberg’s ETF expert Eric Balchunas said on Tuesday, while other analysts said the resulting move to increase liquidity could set up an environment for cryptocurrencies to benefit.

“Once the Fed steps in, rate cuts, balance-sheet expansion, even targeted ETF purchases, crypto has historically entered a medium-to-long-term uptrend, similar to what we saw in 2021, as risk appetite returns and capital rotates back into high-beta assets,” Bitget Wallet chief operating officer Alvin Kan told Cointelegraph.

Stocks deeply embedded in American households

Balchunas said that 58% of Americans own stocks, so “the political pressure to keep stocks out of a prolonged bear market is going to be very powerful.”

In 2020, the Fed bought corporate bond ETFs during COVID-19 to act as a “buyer of last resort” to restore liquidity to frozen credit markets. The unprecedented move saw it acquire $8.7 billion worth of ETFs, which helped to limit economic damage from the pandemic.

“I think there’s a good chance the Fed will buy equity ETFs in the next major downturn to support [the] market, and it will be common practice going forward,” said Balchunas.

Related: Crypto turns ‘contrarian bet’ as AI stocks draw investor attention: Bitwise

Central banks in China and Japan currently use indirect equity ETF purchases via authorized intermediaries with public funds to boost liquidity, and America could follow, he added.

“This is just one byproduct of the ‘Nothing Stops This Train’ monetary supply explosion and debt extravaganza sweeping the world, but especially in the US, which at this point feels irreversible.”

US stock market cap growth over the past five years, as measured by the Wilshire 5000 Total Market Index. Source: Yahoo Finance

Crypto remains tied to dollar liquidity

HashKey Group senior researcher Tim Sun said that a prolonged, severe bear market “would do far more than just erode investor wealth — it would directly shock consumer spending, compromise pension stability, stall corporate credit expansion, and dent tax revenues.”

While cryptocurrencies will not receive direct backing from the central bank, “their macro pricing remains fundamentally tied to US dollar liquidity, real interest rates, and equity market risk sentiment,” Sun added. 

“Once market participants are convinced that a policy floor effectively underpins risk assets, the risk premium demanded for highly volatile assets will compress. As a result, Bitcoin and mainstream crypto assets are poised to benefit significantly from improving liquidity expectations and a broader revival in risk appetite.”

Bitcoin has underperformed US stock markets this year. Source: Google Finance

Strong incentive to backstop major drawdowns

“This structural backstop supports a more resilient macro backdrop, and that’s ultimately bullish for crypto’s role as a growth and diversification asset in a world of expanding global liquidity,” Kan said. 

Meanwhile, Jeff Mei, the operating chief of BTSE, told Cointelegraph that in the event of a downturn, “it’s difficult to see the Fed printing more money to stimulate it, given that inflation is still high. However, there are other tools they can deploy to take action.”

Features: The biggest blockchain upgrades still to come in 2026