Dear Founders, Investors, and Friends,
a little belated than usual but still very relevant, please find our recap of the main activities in February.
February was a stark reminder that markets know both directions: up and down.
After months of steady gains, risk assets hit a wall. The NASDAQ and S&P 500 fell over 6% from their January highs, and crypto was hit even harder. Bitcoin retraced nearly 25% from its late-January peak of $109K, while most altcoins saw even steeper losses.
In terms of crypto, the moves had two primary causes: a mix of macroeconomic stress and industry-specific turbulences.
Let's unpack them.
The Macro Backdrop
Investor sentiment turned sour as economic uncertainty mounted. The U.S. rattled global markets by proposing new 25% tariffs on key trade partners, reigniting concerns about supply chains and inflation.
Meanwhile, interest rates remained high, keeping borrowing costs elevated and putting pressure on high-growth sectors.
Geopolitical instability and lingering recession fears only added to the risk-off environment.
Crypto Sell-Off
Within crypto, leverage unwinds accelerated the downturn.
Bitcoin ETFs, which had been a key driver of inflows, saw record weekly outflows of $3.3 billion as hedge funds unwound long positions.
At the same time, trust in centralized platforms took another hit when Bybit suffered the largest hack in crypto history, losing $1.4 billion in ETH (more on that below).
But perhaps the strangest development was the sudden explosion of politically driven memecoins, which added an extra layer of volatility – and created unnecessary negativity around crypto.
Memecoins: The Pendulum Swings Back
Donald Trump’s entry into the memecoin arena set off a bizarre chain reaction.
Last month, the Central African Republic’s president launched his own CAR token. While some initially suspected his account was hacked, it didn’t stop traders from speculating – pushing the token to a $900 million market cap before it collapsed to $70 million shortly after.
The madness continued in Argentina, where President Javier Milei promoted another memecoin, LIBRE, on X.
The launch went through the familiar pattern: The token’s market cap shot up to $4.5 billion within minutes, only to crash when insiders sold their allocations to the tune of over $100 million.
Milei quickly distanced himself, but the fallout triggered a federal investigation into whether the president himself was actively involved.
These episodes confirm what’s been obvious for a while: memecoins have fully detached from their original cultural roots. They are no longer internet-native expressions of humor and community, but rather short-lived casino games where insiders control the odds.
At some point, this kind of speculation burns itself out. This is why we at Blockwall expect the market to shift its focus back to fundamentals—meaning to protocols with real revenue and sustainable business models. See Dominic's thoughts on this shift here.
Bybit Hack: Crypto's Largest Hack
On February 21, Bybit, one of the world’s largest crypto exchanges, suffered an unprecedented security breach.
Hackers stole $1.4 billion in ETH, making this the largest crypto theft ever recorded.
The attack was traced back to the North Korean Lazarus Group, which infiltrated Bybit’s systems by compromising a developer at the exchange’s wallet provider, Safe. This allowed them to distribute malware and manipulate approval mechanisms, bypassing standard security controls.
Unlike past exchange collapses, Bybit didn’t freeze withdrawals and handled the situation exceptionally well. Despite an additional $5 billion bank run by its customers, all customer funds remained accessible—thanks in part to emergency liquidity from competitors and lenders.
Just days after the attack, Bybit’s CEO confirmed that the exchange had fully covered the losses, and all balances were once again backed 1:1.
As of now, Bybit reports that 77% of stolen funds are being tracked, 20% are lost from view, and 3% have been frozen.
Crucially, this hack wasn’t the result of a smart contract flaw but human error—proving that even multi-signature wallet setups remain vulnerable to large-scale attacks.
For many exchanges, this hack serves as a wake-up call to strengthen security measures and accelerate the shift toward institutional-grade custody solutions.
Regulation: The SEC's Retreat Continues
After years of aggressive enforcement, the U.S. SEC continued its shift in stance in February, closing high-profile investigations.
Robinhood, Uniswap Labs, Consensys, Gemini, and OpenSea all received notifications that their previously issued Wells Notices would not lead to legal action.
Even the long-running case against Coinbase was dismissed, signaling a broader de-escalation.
As part of this shift, the SEC has also begun scaling back its Crypto Assets Enforcement Unit, with dozens of attorneys being reassigned.
In a particularly surprising move, the SEC’s Division of Corporation Finance issued a statement clarifying that most memecoins do not meet the legal definition of securities, framing them as more akin to collectibles.
While the agency made clear that outright fraud would still be prosecuted, the statement effectively puts an end to speculation about whether tokens like Dogecoin could face securities laws.
What we're witnessing in real-time is the most dramatic regulatory shift ever—and it also sets the stage for renewed institutional interest.
Institutions Keep Accumulating
While retail sentiment remains fragile, institutional adoption continues, with major players now entering the space.
Abu Dhabi’s Mubadala Investment Company, one of the UAE’s largest state funds, disclosed a $437 million stake in BlackRock’s Bitcoin ETF—marking the first known sovereign allocation to a Bitcoin ETF.
On the U.S. pension fund side, the State of Wisconsin Investment Board doubled its Bitcoin ETF holdings to $321 million in Q4 2024, making it one of the most crypto-exposed pension funds in the country.
At the end of the month, BlackRock once again made a Bitcoin-related headline: The asset manager added a 1–2% Bitcoin allocation to its flagship $150 billion model portfolios. For the first time, BlackRock’s model investment strategies—widely used by financial advisors—will include the iShares Bitcoin Trust ETF (IBIT) as a small slice of their balanced portfolios. This puts BTC exposure in front of thousands of advisors and clients, potentially driving new demand for Bitcoin via these channels.
So, despite all the hiccups along the way, crypto slowly but surely continues to establish itself as a key part of the financial system.
Blockwall Portfolio Update
We’re thrilled to announce our most recent investment: Byzantine Finance.
Together with our colleagues at Node Capital, we co-led the restaking protocol’s $3 million pre-seed round.
Byzantine’s goal is simple: to make the increasingly fragmented restaking landscape more accessible and to provide institutional investors with the right infrastructure to access restaking yield in a secure and compliant way.
If you want to learn more about the restaking space and why we invested in Byzantine, we recommend reading the dedicated article by Damien.
Key Events of the Last Few Weeks
- State Street and Citi about to enter the crypto custody market. According to a report by The Information, State Street's offering is expected to go live next year. With $46.6 trillion in assets under management, State Street is the world's second-largest custody bank, while Citi ranks fourth with $25 trillion. (Source: The Information)
- FTX starts repayments. Initially, around $1.2 billion will be paid out to creditors whose claims are less than USD 50,000, with a total of around $17 billion to be distributed this year. (Source: X)
- Charles Schwab appoints new Head of Digital Assets. The newly created position will be taken over by Joe Vietri, who has been with the company for 30 years. Observers expect Schwab to introduce spot trading in crypto in the future. With $7.1 trillion in assets under management, the company is one of the world’s largest brokers. (Source: X)
- European Central Bank wants to expand DLT initiative. According to a press release, a DLT-based solution will be developed as soon as possible to facilitate central bank money transactions. (Source: ECB)
- Citadel Securities plans to enter crypto. According to Bloomberg, the American market maker wants to offer its services to Coinbase, Binance and Crypto.com. (Source: Bloomberg)
- DekaBank launches crypto offering. The German bank now offers its institutional clients both trading and custody of cryptocurrencies. With assets under management of around €368 billion, it is one of the largest banks in Germany. (Source: Bloomberg)
What We’ve Been Reading
- An overview of (Re)Staking—Part 2
- In this deep dive, Blockwall’s Damien explains what restaking is, how the landscape is evolving, and why we invested in the restaking protocol Byzantine Finance.
- Blockwall Investor Summit Recap
Last year's Investor Summit brought together some of the sharpest minds from both inside and outside our industry. Our goal was to have real conversations about where crypto, Web3, and other emerging technologies like AI and the Metaverse are headed. In our recap, you’ll find executive summaries of each panel, highlighting the most critical insights—along with links to the full discussions.
Disclaimer
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