Rage Against the AI Machine

Every major crypto asset finished lower over the past week, while the S&P 500 climbed higher, which rules out a “risk-off” shift in markets. BTC lost 3.2%, HYPE 4.3%, BNB 5.2%, ETH 7.0%, XRP 7.3% and SOL 8.4%, while the S&P 500 added 1.2%, gold 1.1% and the Nasdaq 100 0.5%. Whatever took crypto down last week wasn’t a general flight from risk.

The AI build-out is the likely cause of the drop, after the FT reported on Thursday that OpenAI’s annualised revenue is nearer $50bn than the $70bn reported in September. (so not a lot then…). IREN lost 11.8%, Nebius 8.1%, CoreWeave 7.3%, SanDisk 7.0% and the semiconductor index 4.8%, while Palantir gained 11.1%, Amazon 4.3% and Microsoft 3.4%. The dividing line last week was not crypto against equities, but the companies that build and power the AI machine from the companies that sell software on top of them.

Thursday October 8th did most of the damage. SOL fell 5.7% that day, HYPE 4.9%, BNB 4.7% and ETH 3.9%, and the same day CoreWeave plunged by nearly 8%, IREN 8.1%, Nebius 7.4% and Oracle 5.5%. Everything since has been a partial recovery, which is why BTC closes the week down 3.2% having been down 5.5% on Thursday night.

Spot volume across five of the larger cryptocurrencies came to $31.4bn against $35.9bn the previous week, a fall of 12.8%, and it is worth saying plainly that spot is the small half of this market at 10.8% of everything traded. The weekly series peaked at $44.9bn in the week to 27 September and has fallen two weeks running since.

Coinbase is the third largest spot venue on the board at 18.4% of the week, within half a point of OKX and ahead of Kraken at 7.6% and Bitstamp at 3.9%. Binance, as usual, takes 49.9% and Hyperliquid, which dominates elsewhere, is 1.3% of spot (its primarily a perp venue so this is normal).

Perpetual volume was $260.3bn against $290.4bn, down 10.4%, this is where most speculation happens in crypto and the ratio is currently just over 8 times the size of spot. Binance takes 55.1%, OKX 31.8% and Hyperliquid 10.4%, which leaves the three dollar-quoted venues sharing 2.7% between them.

Hyperliquid is the one venue that didn’t see volumes fall massively. Its perpetual volume fell 2.1% while Binance fell 10.6%, OKX about 12% and Kraken 14.3%, so it gained share relative to competitors in a quieter week, signalling its persistent strength.

The big number as always is the ratio between spot and perps, as this signals how much speculation is taking place (i.e. if perps is dominating by a bigger ratio than usually). Bitstamp trades 0.24 dollars of perpetuals for every dollar of spot and Coinbase 0.50, Kraken sits at 1.65, Binance at 9.2 and OKX at 14.0, while Hyperliquid runs at 64.8. That’s over 250-fold spread in market structure across six venues trading the same five assets, and it maps almost exactly onto which of them serve US retail.

ETH perpetuals took $1.62bn of net selling against BTC at $922m, despite ETH turning over a third less (on per dollar traded, selling was about 2.6 times heavier in ETH), and things diverged on Friday when BTC clawed back roughly $700m from its Thursday dip, all while ETH plateaued. This follows price action.

Three weeks out from the US midterm elections and the biggest election market on the two largest prediction venues was Brazilian, not American. Brazil's presidential contracts saw nearly $5m across Kalshi and Polymarket last week against $4.54m on US House control. The gap is wider than that headline makes it look, because the two venues were not trading the same thing. Kalshi's election book was American, carrying $15.7m of midterm contracts against $0.93m of Brazil, while Polymarket's was the other way around entirely at $4.27m on the Brazilian presidency against $1.37m on House control.

That split is interesting as these are the two venues people quote when they want to say the market has priced something. They disagreed last week about which election mattered, and anyone taking a number off one of them should have weighted by volume, which most people don’t bother doing.

All election contracts on both venues came to $34.6m over the week, of which US midterm markets took $18.7m, and Brazil's first round on Sunday the 4th of October did $6.73m in a single day. That is nearly twice what the busiest US midterm day did over the last fortnight managed, on an election in another hemisphere that most of this audience was not watching.

When the Brazilian results landed at 20:00 UTC the main candidate's first-round contract went from 0.33 to 0.81 inside an hour on $41.5k, it later reached 0.96 and settled shortly before midnight, the opposite leg fell from 0.71 to 0.001 in the same four hours. US House control moved four points of probability over eleven days.

Across every Kalshi election contract carrying a dated expiry, 44% of all volume trades on settlement day itself and 67% inside the final week. The median contract turns over $111 a day when it settles that day, $39 a fortnight out and $20 at a month, so the curve has already collapsed long before anyone starts paying attention. This highlights the importance of immediacy in these markets. Hence why 15 minute plays were so successful and extra time dominated the World Cup.

The US midterms settle on 3 November, so these markets aren’t ignoring the midterms but that money in prediction markets arrives late by construction, and on this evidence it should turn up in the first days of November rather than now.

The calendar does the work this week and almost none of it is crypto. Taiwan Semiconductor reports before the US open on Thursday, which is the most direct test available of the argument in this issue, because the semiconductor index fell 4.8% last week and crypto fell alongside it rather than alongside the broad market. Whichever way the guidance lands, we find out quickly whether last week's tracking was structural or a one-week accident.

September CPI arrives on Wednesday, the first inflation print since the Fed's September hike, with consensus sitting near 3.6% on the headline and 2.5% on core, and the Beige Book follows the same afternoon. Thursday carries PPI, retail sales and the Philadelphia Fed survey alongside the Taiwan Semiconductor call, Friday brings industrial production and a scheduled appearance from the Fed chair, and the large banks report Tuesday and Wednesday into all of it.

For crypto specifically there is nothing on the calendar, which is rather the point of the week. Direction is likely to be set by the equity tape again, so the thing worth watching is whether BTC keeps moving with the semiconductor complex or detaches from it once the earnings are out. On the prediction markets the midterms are now 22 days out, and since the spotlight argues the money arrives in the first days of November, another quiet fortnight in those contracts confirms the read rather than undermining it.