ETFs Diverge, Deals Heat Up, and Blunders Expose Risks

Happy Thursday, 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.

In a telling sign of investor caution following last week's historic flash crash, U.S. spot Bitcoin ETFs recorded $104.1M in net outflows on October 15, completely reversing the modest $102.7M inflows from the prior day.

No Bitcoin ETF saw positive flows that day, with Grayscale's GBTC leading the exodus at $82.9M, followed by Invesco's BTCO ($11.1M) and even BlackRock's IBIT ($10.1M).

Over the past week, Bitcoin ETFs have shed a net $332.3M, reflecting broader unease as BTC trades at $111,357, down 9.2% amid lingering effects from the Trump-China trade tensions that triggered cascading liquidations exceeding $20B.

In contrast, Ethereum ETFs bucked the trend by attracting $169.6M in net inflows on the same day, reducing their weekly net outflows to a milder $ 197.6M.

BlackRock's ETHA dominated with $164.3M, underscoring ETH's perceived resilience or a rotation play as traders digest the phase of deleveraging.

Recent data shows this split isn't isolated: on October 14, combined BTC and ETH ETF inflows hit $339M, with ETH leading the recovery at $236.2M, while October 13 saw a brutal $755M combined outflow.

From an investment perspective, this divergence signals a potential shift in portfolio allocations. Bitcoin's outflows may stem from its role as a macro beta play, being more exposed to geopolitical risks, such as the U.S.-China rare earth metal standoff. Ethereum, however, benefits from the momentum of its ecosystem's DeFi and layer-2 developments, attracting inflows as a "tech growth" asset.

For our readers: if you're holding spot exposure, consider ETH's relative strength as a hedge against BTC volatility. Watch for liquidity improvements post-deleveraging; these exhaustion points often precede rallies, but thin markets could amplify swings.

Kraken is doubling down on regulated growth with its $100M acquisition of Small Exchange, a CFTC-licensed designated contract market (DCM) for derivatives, from IG Group.

The deal, structured as $32.5M in cash and $67.5M in stock, marks Kraken's second major futures play this year after snapping up NinjaTrader for $1.5B in March.

This move paves the way for a fully U.S.-native derivatives venue, expanding Kraken's offerings in futures and options amid a market where open interest recently peaked at $230B, even as September volumes dipped 17.5% to $8.12T.

Strategically, this acquisition arms Kraken with critical regulatory infrastructure to compete in the U.S., where crypto derivatives remain a high-margin battleground dominated by offshore players. It's timely, too, as Kraken eyes a 2026 IPO; beefing up its U.S. presence could attract institutional capital and mitigate regulatory scrutiny.

For the broader ecosystem, it signals consolidation in derivatives, potentially increasing on-ramp options for U.S. traders and pressuring rivals like Coinbase to accelerate their own futures pushes.

Kraken's aggressive M&A streak positions it as a top pick for exposure to regulated crypto infrastructure. If you're in exchange tokens or eyeing pre-IPO plays, this enhances Kraken's valuation prospects.

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

In what could only be described as a monumental "oops" moment, Paxos accidentally minted $300T in PayPal's PYUSD stablecoin during an internal transfer on October 15, a figure dwarfing the entire U.S. dollar supply of $2.4T.

This fat-finger error inflated PYUSD's supply far beyond its legitimate $2.64B market cap (the seventh-largest stablecoin), although it was unbacked and swiftly burned using the protocol's mechanisms.

Paxos confirmed no security breach occurred, and customer funds remained secure, echoing a 2019 Tether incident where $5B was mistakenly minted and reversed.

While resolved quickly, the glitch underscores the fragility of stablecoin operations: creating uncollateralized assets, even temporarily, erodes trust in a sector valued at $312B. PYUSD, fully backed by reserves, has grown steadily; however, such errors invite regulatory scrutiny, especially after the GENIUS Act, which aims to standardize issuance process.

This serves as a wake-up call regarding counterparty risks in stablecoins. Stick to battle-tested issuers like Circle or Tether for core holdings, but monitor PYUSD's trajectory; it could face redemption pressures if confidence wanes. Expect more audits and tech safeguards industry-wide; incidents like this fuel arguments for decentralized alternatives.

Tech giant Sony is making waves in the crypto space, with its subsidiary Connectia Trust applying to the OCC for a national bank charter to issue USD-pegged stablecoins, manage reserves, and provide non-fiduciary digital asset custody services.

This filing, which leverages the new GENIUS Act framework, positions Sony alongside applicants such as Stripe, Coinbase, Paxos, and Circle, although only Anchorage Digital has received full approval so far. Initial focus: stablecoin issuance and affiliate asset management, building on Sony's earlier Ethereum layer-2 launch, Soneium.

The move reflects a traditional-crypto convergence rush, with a stablecoin market cap of $312B and projections reaching $360B by February 2026 (68% probability on prediction markets).

Sony's entry could unlock enterprise-grade adoption, using its global reach for payments and transfers in restricted markets, profitable territory, as seen with Tether's billions in earnings.

This is bullish for stablecoin growth, potentially onboarding millions via Sony's ecosystem. For investors, it validates big tech's crypto pivot, watch related tokens like ETH for upside from increased utility. Regulatory hurdles remain, but approval could catalyze more corporate entries.

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