Black Friday Chaos, Post-Crash Recovery, Institutional Moves, and Protocol Upgrades in Crypto

Happy Monday, TM Family!

Welcome to the Token Metrics Research | Daily newsletter, where we cover key market movements, regulatory updates, and early alpha for our readers and investors. 

Let's dive in! 

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Now let's get back to the top stories of the day.

Friday's market turmoil, dubbed "Crypto Black Friday" by observers, marked the largest single-day liquidation event in history, with over $20B in positions wiped out across exchanges.

Potentially triggered by President Trump's announcement of 100% tariffs on Chinese imports in retaliation for rare-earth restrictions, the sell-off escalated into a structural crisis, erasing a total of $500B in market capitalization and $65B in open interest.

Bitcoin plunged 13% to $104,000, while altcoins suffered steeper drops, some flashing to near-zero on illiquid venues before rebounding.

Key mechanics included cascading liquidations that overwhelmed order books, leading to auto-deleveraging (ADL) on platforms like Hyperliquid, where profitable positions were forcibly trimmed to cover losses. This zero-sum necessity shocked even seasoned traders.

Centralized exchanges (CEXs) faced scrutiny, with Hyperliquid's founder, Jeff Yan, alleging underreporting of liquidations by up to 100x on venues like Binance due to API limitations.

Infrastructure buckled under user surges, causing wrapped assets like Binance's wBETH and BNSOL to crash dramatically (wBETH to $430 amid ETH at $3,800+), prompting Binance to pledge case-by-case compensation for affected users.

Ethena's USDe briefly depegged to 65 cents, highlighting vulnerabilities in yield-bearing stables during liquidity vacuums, though it quickly recovered with overcollateralization intact.

This event exposed hidden leverage risks and operational frailties in perp trading, but DeFi protocols like Aave demonstrated resilience by liquidating $180M in collateral flawlessly.

While comparisons to past crashes (e.g., Luna/FTX) abound, this appears more a case of a leverage flush than a fundamental shift, potentially setting a healthier base for Q4 if geopolitical tensions ease.

Following the wipeout, the crypto market staged a robust rebound, with Bitcoin climbing back above $114,000 (up 3% in 24 hours) and Ethereum surging 8.5% to $4,132.

Altcoins led the charge, as Cardano (ADA) and Dogecoin (DOGE) each gained nearly 10%, drawing in dip-buyers amid an "emotional reset."

The total market cap recovered 5.7%, with trading volumes up 26.8%, signaling a renewed risk appetite as U.S.-China rhetoric cooled, China's commerce ministry clarified that there would be no blanket bans, and Trump emphasized aid over harm.

Remarkably, investment products logged $3.17B in weekly inflows despite the chaos, pushing year-to-date totals to a record $48.7B. U.S.-based funds dominated with $3.01B, including $2.71B into spot Bitcoin ETFs and $488M into Ethereum ETFs, while ETP trading volumes hit $53B, Friday alone saw $15.3B. Bitcoin and Ethereum funds absorbed the bulk ($2.67B and $338M weekly), with Solana and XRP also attracting capital.

This is a testament to maturing market structures: leverage was purged, ETF flows remained strong, and metrics such as low exchange balances and bullish options skew suggest that conviction holds. If trade wars de-escalate, we anticipate a Q4 push toward all-time highs; however, monitoring CPI data and Fed decisions will remain crucial.

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Now, let's continue with the top stories of the day.

Institutional adoption showed no signs of slowing, with Michael Saylor's Strategy (formerly MicroStrategy) adding 220 BTC for $27.2M last week, bringing holdings to 640,250 BTC, over 3% of total supply, valued at $73B with $25.6B in unrealized gains.

Funded via preferred stock sales under the "42/42" plan (aiming for $84B by 2027), Saylor's "Don't Stop ₿elievin'" mantra amid volatility positions Strategy as a Bitcoin treasury benchmark, inspiring 188 public companies to follow suit.

Morgan Stanley escalated its crypto push by opening Bitcoin and Ether fund access to all wealth clients starting October 15, dropping prior $1.5M asset and risk thresholds, a move covering $8.2T in AUM, with initial offerings from BlackRock and Fidelity, and direct trading on E-Trade slated for later this year. This aligns with post-election regulatory shifts under Trump, enhancing competition with platforms like Coinbase.

Elsewhere, China Renaissance is negotiating $600M for a U.S.-listed BNB treasury vehicle, committing $200M alongside YZi Labs (ex-Binance Labs), building on a $100M prior allocation.

Prediction market Kalshi raised $300M at a $5B valuation from Wall Street and crypto investors, bolstering its CFTC-regulated event-trading amid hybrid finance trends.

These moves reflect a broader trend of treasury diversification, with Bitcoin and BNB serving as store-of-value plays. Expect accelerated inflows as traditional finance further integrates crypto.

On the technical front, Hyperliquid activated its HIP-3 upgrade on October 13, enabling permissionless perpetual futures market deployments by staking 500,000 HYPE. This upgrade includes safeguards such as open interest caps and validator slashing, a step toward complete decentralization on HyperEVM. HYPE rose 11% following the announcement, underscoring DeFi's appeal after CEX strains.

The Ethereum Foundation launched a new fund via Keyring's zkVerified vaults, directing USDC-supplied protocol fees (initially $22K raised) to privacy developers, starting with legal defense for Tornado Cash's Roman Storm and Alexey Pertsev. This taps into surging privacy interest, with the sector's market cap topping $10B, led by Monero and Zcash, and rivals like Cardano's Midnight gaining traction.

These initiatives highlight Ethereum's commitment to privacy amid regulatory scrutiny, which may boost adoption. Hyperliquid's upgrade could disrupt perpetual trading, drawing liquidity from centralized exchanges after the meltdown.

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That's all for today. Let's talk tomorrow.