The CFTC Decision: A Turning Point for Crypto Derivatives

On May 29, 2026, the CFTC approved a Bitcoin perpetual futures contract on US soil for the first time in history. This is a major milestone for the crypto market, as perpetual futures are the single largest trading product in the crypto space.

• Background: The derivatives market is 5 to 10 times larger than the spot market. Until now, US traders had severely limited access, as over 90% of volume was executed on unregulated offshore exchanges.
• Two separate actions:
  • Kalshi received a full commission order. This is the highest regulatory stamp the CFTC can issue. Their product (BTC Perp) is a fully compliant, domestic perpetual futures contract with KYC, position limits, and central clearing.
  • Coinbase received only a 'no-action letter'. This allows Coinbase to route US clients to its offshore affiliate, Darabit – a bridge to offshore liquidity, but not a true domestic product.

What is a Perpetual Future?

A perpetual (or 'perp') is a derivative that allows you to bet long or short on an asset's price with leverage, without ever owning it. Unlike traditional futures, a perp has no expiration date. The price is tethered to the spot market via a funding rate mechanism (every 8 hours).

• Volume: Global perp volume in 2025 ranged between $61.7 and $92.9 trillion (up from $28 trillion in 2023).
• Significance: Perps account for over 70% of all volume on centralized crypto exchanges.

Why is this decision bullish for the market?

• Institutional capital: US pension funds, hedge funds, and asset managers are prohibited from trading on unregulated offshore exchanges. The approval opens the door to the deepest hedging instruments in crypto (e.g., delta-neutral strategies).
• Demand: Kalshi saw $1 billion in trading volume in its first week and open interest of $810 million (up 28% in one week). This shows massive pent-up demand.
• Comparison: Similar to spot Bitcoin ETFs, the perp approval opens a new regulatory compliant front door for institutional investors.

The Dark Side: A Warning Shot for Hyperliquid

While the decision is generally bullish for perpetual futures as a product category, it is specifically aimed against decentralized and permissionless exchanges like Hyperliquid.

• Hyperliquid is the dominant perp provider (over 50% of on-chain perpetual volume, over 70% of decentralized open interest).
• The Problem: The CFTC only approved fully compliant venues (KYC, position limits, central clearing). Hyperliquid is the opposite: permissionless, no KYC, leverage up to 250x, and the ability to list almost anything (e.g., synthetic SpaceX shares).
• Market Reaction: The HYPE token briefly hit an all-time high above $73.50 but dropped 15% in the week due to regulatory concerns, a token unlock ($684 million), and sales by Arthur Hayes.

Hyperliquid's Structural Vulnerability

• USDC Dependency: Hyperliquid runs entirely on USDC, issued by the regulated US company Circle. Regulators could pressure Circle to restrict flows to non-compliant platforms – a structural chokepoint.
• Competitive Advantage: Regulated exchanges can never match Hyperliquid's flexibility (e.g., weekend trading, exotic assets, high leverage). Hyperliquid remains attractive for the global, crypto-native trader.

Strategic Options for Hyperliquid

1. Retreat to Permissionless Ethos: Risk of regulatory isolation.
2. Build Compliant On-Ramps: Risk of self-cannibalization ("Why not just use Coinbase?").
3. A Third Way: Hyperliquid is pushing a policy initiative, arguing for the superiority of on-chain transparency, and partnering with regulated entities like Grayscale, Bitwise, and Kraken.

What to Watch

• Altcoin PERP Expansion: Kalshi plans 12 more altcoin PERPs, including HYPE. Approval would be both a validation and a competitive threat.
• Volume Migration: Monthly comparison between Hyperliquid and Kalshi volume.
• Clarity Act: Could bring tailored regulation or untenable obligations for Hyperliquid.
• Circle & USDC: Any regulatory move against stablecoin flows to non-compliant platforms would be a risk.
• Token Unlock in November 2026: The next stress test for the buyback mechanism.

Conclusion: Bullish or Bearish for Hyperliquid?

The answer is twofold. In the short term, Hyperliquid benefits from the legitimization of the product category. In the long term, however, institutional volume is threatened by regulatory channeling to compliant venues. The market must decide if Hyperliquid is the dominant horse in a growing race or the outsider slowly being left behind.

Key Message

• Vaults will become a critical part of global financial infrastructure – but the space is still early.
• Current usage is largely limited to on-chain looping and point farming, which the speaker describes as rather “cheap” or lacking substance.

Progress & Adoption

• The infrastructure is increasingly proving itself.
• Reputable asset managers – both the speaker’s firm and well-known TradFi asset managers – are beginning to enter the space.
• Partnerships with prominent TradFi custodians are underway to offer tokenized securities.
• These developments are converging and will make vaults very important going forward.

Regulatory Hurdles

• The main issue is the currently limited SEC innovation exemption for vaults and automated market makers (AMMs).
• Much of a vault’s value lies in its permissionless nature and composability.
• Once transfer points or access-restricted networks are added, the exemption only allows an AMM on a whitelisted platform – without real liquidity.
• In that form, it is not practically useful.

Outlook

• As a result, many benefits of vaults are currently available only offshore.
• It remains to be seen whether US regulation catches up or explicitly distances itself from these applications.

The Largest Hack in History Hit Binance

On October 29 at 4:00 PM Eastern Time, North Korean hackers made off with $6.3 billion from Binance – the largest hack ever, not just in crypto. Fortunately, about half was frozen, but the incident remains unprecedented.

How the Hack Unfolded

• An infected developer laptop was the entry point. 9 out of 10 major attacks in the last three years started this way.
• The hackers gained access to a service container that could sign transactions – like having access to a pen in a bank that issues checks.
• They pre-signed 50 transactions with different nonces and used one to convert the hot wallet into a smart wallet (via EIP-7702).
• From there, they drained all assets while new deposits kept flowing in and were instantly stolen.

The Role of EIP-7702

• EIP-7702 allows a regular crypto wallet (EOA) to temporarily borrow a smart contract's code.
• The hackers used it to drain all assets in one transaction – more efficient, but not the root cause.
• The hack would have happened with or without EIP-7702; it just sped things up.

Key Takeaway

• This hack is a story about operational security, malware, and likely social engineering.
• New features like EIP-7702 expand the attack surface, but the core failure was inadequate protection of signing capabilities.
• The community must learn from this to prevent future attacks.

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Listen to the full conversation on the podcast 'Unchained' with Laura Shin – live every Monday and Thursday.

The New Political Reality

The 2026 midterms resulted in a historic Democratic sweep of both chambers of Congress, fundamentally breaking the political paradigm of the last decade and reshaping the landscape for crypto regulation.

• The Clarity Act is widely considered dead. The window for industry-friendly market structure legislation has closed, at least for this Congress.

The Internal Democratic Fight

There is a severe split within the Democratic party on how to handle crypto:

• The Revenge Wing (Warren Faction): Senator Elizabeth Warren (incoming Chair of the Banking Committee) is expected to launch aggressive oversight and regulation. The hosts describe this as an 'anti-crypto army' focused on litigating past grievances.
• The Pragmatic Wing: A wave of new, younger millennial members (Tarico, Andrews) is less interested in waging war on tech and more focused on kitchen-table issues like affordability and anti-corruption.

Key Quote: “The extremism of some members of the crypto industry mirrors their antagonist in Elizabeth Warren. ...they are more similar to each other than they are to people in the middle.” (Horseshoe Theory).

Concrete Threats to the Industry

• Market Structure Bill 2.0: Rep. Maxine Waters is drafting a much stricter bill, likely including stricter DeFi rules, expanded SEC jurisdiction, and mandatory 24-hour payout audits.
• Genius Act Implementation at Risk: Even though enacted, the Democratic Congress can hamstring its implementation through budget riders and hostile oversight of the rulemaking agencies.
• Investigations: A major focus will be the Trump family's crypto ventures (World Liberty, meme coins). This scrutiny creates a political opening for other companies to position themselves as good-faith actors.

A Strategic Reset is Required

Panelists Mike Katz and Justin Slaughter strongly advise the industry to change its strategy immediately:

• Super PACs are a weapon of last resort. The massive spending (e.g., $56M against Sherid Brown) failed to intimidate Democrats and may have backfired.
• Build Bridges: The industry must stop relying on raw financial power and instead engage in good faith on Democratic terms, explaining crypto's utility in areas like cheaper payments and financial inclusion.
• Pick Your Battles: Accepting stricter rules on custody and audits while pushing back on extreme DeFi bans is the path forward. The next two years are critical to avoid a much worse outcome if Democrats win the presidency in 2028.

Market Mechanics and Current Situation

• The stock market shows remarkable resilience: despite rising interest rates (10-year Treasury from 4% to 5%), higher oil prices (55 to 95 USD), and geopolitical events, stocks gained 11%.
• The market is currently the second most expensive in history (only surpassed by the dot-com bubble), with a dividend yield at historically low 1%.

Key Market Drivers

• Passive investing dominates with 55-60% of market activity – automated purchases via 401(k) plans and retail investors.
• Foreign inflows: $1.6 trillion flowed into the US market in 2025.
• Stock buybacks by companies: approximately $800 billion annually (including stock-based compensation).
• Inelastic market hypothesis: Each invested dollar increases market capitalization by $5–8. Combined, $2 trillion inflows explain a $10 trillion rise.

What Would Trigger a Proper Crash?

1. Reversal of 401(k) contributions: Starting in 2028, baby boomers may generate net negative contributions for the first time.
2. Panic selling by foreign investors: They hold over $20 trillion in US assets; a $5 trillion withdrawal could push the market down by $25 trillion.
3. Halt of stock buybacks due to a recession.
4. Negative inelastic market: Selling would amplify the downtrend.

• Prerequisite: A severe recession like 2001/2009 – as long as the US economy grows (Q4 accelerated), the market remains stable.

Outlook and Strategy

• Mark Spitznagel predicts a crash around 2027–2028 with an 80% decline, but remains short-term optimistic and hedged.
• Value investing opportunities still exist: Realty Income (dividend + inflation protection), Netflix, Kaspi (high dividend yield), Chinese internet stocks (oversold).
• Recommendation: Focus on fundamentals rather than timing a crash. Buffett quote: "When others are less cautious, we should be more cautious."

Key Takeaways from the Interview with Russell Clark

Russell Clark, founder of hedge fund Bramble Capital, discusses the economic and political consequences of the US midterms and the dynamics of AI investments. His central thesis: Rising government spending, higher inflation, and growing wages are systemic – not a short-term cycle.

Political Landscape After the Midterms

• The election result was less a vote for Democrats than a rejection of Trump's policies, driven by people wanting more money in their pockets.
• Trump's successful immigration policy removed a key political pillar; high oil prices and cuts to social programs weakened his base.
• Clark expects pro-worker and inflation-friendly measures to intensify. Trump will likely veto tax increases, but higher spending is probable – the deficit will not shrink.

AI Bubble: Why Not Short?

• The best short opportunities arise from overcapacity driven by logical incentives – e.g., China, where companies compete for market dominance.
• Clark sees no such clear overcapacity in AI: demand for data centers remains enormous, and hyperscalers are fully booked.
• AI is an existential threat for Google, Microsoft, etc. – they must invest, even if it looks financially irrational.
• Governments may step in to prevent China from gaining an edge, limiting downside for shorts.
• As long as equity markets keep funding AI projects like SpaceX or OpenAI, the crucial evidence for a bubble bursting is missing.
• Even Oracle, despite a fallen stock price, has not drastically cut capex – it continues to raise billions in capital markets.

Capital Scarcity and Inflation

• The vast capital pools from Asia that used to flow into US Treasuries are shrinking – central banks hold fewer dollar reserves.
• This leads to higher capital costs and tighter financing conditions, likely hurting private equity and alternative asset managers.
• The US is in a kind of Cold War with China, which permanently elevates defense spending and investment – reminiscent of wartime economies.
• Wages are the true inflation driver, not oil. Once the Fed cuts rates, the long bond market may sell off because investors realize inflation is not being fought.

Opportunities and Risks for Investors

• Clark is positive on Japan: its long stagnation was politically imposed (US pressure to limit semiconductors). Now investment returns, and rising property prices are less politically sensitive than elsewhere.
• US homebuilders and franchise restaurants could come under pressure as margins shrink due to higher labor, energy, and interest costs.
• Share buybacks remain the dominant market driver, with Apple as a prime example. Companies without existential AI capex needs may benefit long-term.
• Oil is a “dead investment”: road transport demand has peaked, and the link between energy consumption and GDP is weakening.

Conclusion

Russell Clark sees asymmetric risks: while the AI bubble offers a poor risk-reward for short sellers, structural inflation trends and capital scarcity are the key factors for the years ahead. He continues to search for concrete evidence for a short position – but hasn't found it yet.

📉 Market Under Pressure: Echoes of 2018

This video analyses the ongoing losses in the US stock market after the midterms and draws striking parallels to 2018. Back then, a post-midterm rally quickly reversed into a sharp Q4 sell-off – a pattern that looks set to repeat.

🔍 The Three Key Factors Driving the Decline (Then & Now)

• 🐦 Hawkish Fed: The Federal Reserve continues to signal rate hikes despite dropping markets. There's still a ~75% chance of a December rate increase.
• 🌍 Escalating Trade Wars: Similar to 2018, tariffs are squeezing profit margins for companies like Caterpillar, 3M, and Ford. Today, tensions with Iran add another layer of uncertainty.
• 🔍 Tighter Regulation: Increased scrutiny, especially around Artificial Intelligence (AI), is weighing on sentiment – mirroring the regulatory headwinds tech stocks faced in 2018.

💡 Outlook: What Does This Mean for Crypto?

The presenter warns: If the NASDAQ can test its July low, why can't Bitcoin? He expects a potential capitulation of the last remaining optimists before the next bull market begins. Markets are currently driven by headline fatigue and high uncertainty.

📅 Conference Note: The 'Investing Through the Cycles' conference in Miami takes place in just over two weeks – check the description for details.