Crypto wipes out

Crypto markets have erased ~$2 trillion of value since their peak in October 2025. Bitcoin declined by roughly 50% from a peak of ~$125,000 to a trough earlier this week of ~$62,000 before rebounding to recent trading levels near $69,000. Ethereum has fared worse, declining over 60% from its recent peak to a trough of ~$1800. This has coincided with episodic shocks like South Korean exchange Bithumb’s accidental $44 billion Bitcoin giveaway that knocked prices sharply lower before a rebound. Liquidations in futures markets topped $2.5 billion during a recent sell-off, and major players such as BlockFills halted withdrawals amid liquidity stress, underscoring persistent structural fragilities.

• Volatility in crypto is a feature, not a bug
• A wave of recent entrants (ETFs, DATs, etc) into the space has broadened ownership, but also increased the potential for volatility
• We believe the two main culprits behind this recent decline are: the stalled CLARITY Act in Congress, and the recent pullback in technology stocks
• Crypto hit new all-time highs last year, given the government was moving to provide a regulatory framework for the space
• While the GENIUS Act did pass, providing rules for stablecoins, the CLARITY Act, which is supposed to provide a more comprehensive framework for the crypto space, has stalled in the Senate
• Crypto has also been recently correlated to tech stocks, which have broadly experienced pressure recently
• Should the CLARITY Act finally get through the Senate and get signed into law, sentiment would improve going forward

AI risk spreads to other sectors

This week’s market action proves AI risk is rapidly spreading beyond software stocks. After startup RIA custodian, Altruist, rolled out a new AI-powered tax-planning and advisory tool that can generate personalized strategies in minutes, investors sold large wealth and brokerage stocks on fears that automation could erode fee-based revenue pools. Shares of major firms such as Charles Schwab fell about 7–8%, LPL Financial dropped around 8–10%, and Raymond James slid ~8–9% in a single session as the market repriced incumbent vulnerability to AI disruption.

The fears didn’t stop there, spilling over the next day into real estate services as investors assessed vulnerability to AI applications that could automate complex deal-making, reduce office demand, or disrupt labor-intensive models. Commercial real estate giants like CBRE plunged 12–15%, Jones Lang LaSalle dropped 12–13%, and Cushman & Wakefield fell 13–15% over a two-day sell-off, marking some of the steepest single-day drops since the 2020 pandemic meltdown.

By Thursday, the AI scare trade had engulfed transportation and logistics, triggered by little-known AI firm Algorhythm Holdings’ launch of SemiCab, a freight orchestration tool claiming to scale volumes 300–400% without added headcount and slash empty miles by over 70%. Trucking and freight stocks cratered, with C.H. Robinson tumbling 14–15% (after an intraday low near 24%), Landstar System sliding 15–16%, and Universal Logistics suffering double-digit losses.

• Recent advances in AI models have forced investors to consider the implications beyond just software companies
• The market seems to have reacted with a “sell first, ask questions later” at every new narrative
• The reality is AI will likely change how most, if not all, industries function
• This will likely mean some business models will be severely disrupted, while others will re-value based on new margin and growth profiles
• It is too soon to draw conclusions with any level of specificity, it does seem undeniable that AI models have continued to improve exponentially
• The key will be to pay close attention as adoption, which is still nascent, increases

Japan’s decisive election

The ruling Liberal Democratic Party secured a historic two-thirds majority in the lower house, winning 316 of 465 seats and, with coalition support, consolidating 352 seats overall, the largest share since 1945 and granting Prime Minister Sanae Takaichi a clear policy runway. Markets reacted positively, with Japanese equities jumping on expectations of an acceleration in fiscal stimulus, consumption tax relief, and strategic investment in growth sectors like semiconductors and energy. Analysts see this mandate as reducing political uncertainty and supporting structural reforms that could drive earnings, though investor attention remains fixed on potential bond market volatility and the sustainability of fiscal expansion against Japan’s large public debt.

• There are two probable implications of this election: higher Japanese interest rates and China foreign policy
• As the new government begins to enact its fiscal policy, the risk for stickier inflation increases
• Interest rates, already at multi-decade highs, could continue to trade higher
• Japanese investors could sell US treasuries as the spread versus Japanese bonds becomes less attractive
• This could exacerbate selling of treasuries, as Japanese investors are the largest holders of US government debt
• Selling of US treasuries would put upside pressure on US yields at a time when the current administration has indicated it wants lower rates
• As it pertains to China, the new Prime Minister has taken a hard-line stance related to Taiwan
• Japan views China’s threats to re-integrate Taiwan as an existential threat
• This would almost certainly pull the United States into a potential conflict

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