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In this week's edition, Marc Hochstein and Alex Thorn look at the CFTC chair’s turf war with state gambling regulators over prediction markets; Zack Pokorny analyzes Coinbase-backed L2 Base’s migration from Optimism to its own tech stack; and Will Owens unpacks Nakamoto’s acquisition of BTC Inc., the world’s most prominent Bitcoin media company.
Market Update
The total crypto market cap stands at $2.38t, down 1.93% from last week (when it stood at $2.42t). Bitcoin's network value is 3.90% of gold's market cap. Over the last seven days, BTC is down 0.12%, ETH is down 0.75%, and SOL is up 4.63%. Bitcoin dominance is 56.72%, up 36 basis points from last week.
CFTC Chair Plays Hardball With States Over Prediction Markets
Commodity Futures and Trading Commission chairman Mike Selig fired a shot across the bows of state gambling regulators, asserting his agency has “exclusive jurisdiction” over federally licensed prediction markets – even when they list contracts on sports-related outcomes.
The agency filed a friend-of-the-court brief in the ongoing litigation between Crypto[.]com and Nevada over the exchange's sports contracts. Under federal law, futures and many swaps trade on federally regulated exchanges, and Congress granted the CFTC “exclusive jurisdiction” over those markets to prevent a patchwork of state-by-state rules, the brief said. Event contracts, it went on, meet the broad legal definition of “swaps” because their payouts depend on the outcome of uncertain future events with economic consequences. Sports contracts, the CFTC argued, fit the bill because they, too, have such consequences: TV viewership, t-shirt sales, hotel bookings and other business activities can depend on a team’s performance.
The dispute follows rapid growth in prediction markets over the past two years, during which federally regulated exchanges (not to mention offshore, onchain ones) have sharply expanded the number of event-based contracts tied to elections, economic data, cryptocurrency prices, and other measurable outcomes – not least of all sports, which now account for the majority of volume at CFTC-regulated Kalshi and the recently launched, U.S. version of Polymarket.
Selig also laid out his arguments in media appearances and even took to X (formerly Twitter) to announce the court filing with a prerecorded video in which he did not mince words. “To those who seek to challenge our authority in this space, let me be clear: We will see you in court,” Selig said. He also took shots at former New Jersey Governor Chris Christie, now an advisor to the gambling lobby.
Our Take
We can take or leave sports contracts, one of the least interesting types of prediction markets. But the aggressive tack taken by Selig is remarkable.
Under the Trump administration, an agency that was once lukewarm about prediction markets has become one of their loudest champions. “They provide useful functions for society,” Selig said in his video message. The CFTC wants “to ensure that these markets have a place in America.” (Unlike the court brief, his video clip did not mention sports bets.)
Such comments stand in sharp contrast to the cautious stance of his predecessor under Biden, Rostin Benham, who tried to stop federal exchanges from offering contracts on elections (never mind sports).
“We don’t merit-regulate,” Selig said on a recent episode of the “Odd Lots” podcast. “We don't tell people what they should be entering into contracts on. We create rules and regulations around those markets.”
With the CFTC working on a proposed rulemaking for prediction markets (to replace a Biden-era one Selig withdrew), a more interesting question than sports betting is how those regulations will address the hot-button topic of insider information. When asked about this issue on “Odd Lots,” Selig said the CFTC would act as a “cop on the beat in that regard.”
As we’ve previously written, at least some forms of “insider” trading are arguably a feature, not a bug, of prediction markets; part of their value to society is the informational signal baked into the prices. Prediction markets also raise novel questions about what constitutes market manipulation. There are a variety of recent examples, and differences between them matter even if they seem minor.
During Coinbase’s 3Q earnings call in October, CEO Brian Armstrong ended by saying “I just want to add here the words ‘Bitcoin,’ ‘Ethereum,’ ‘Blockchain,’ ‘Staking,’ and ‘Web3’ to make sure we get those in before the end of the call.” By uttering those words, Armstrong caused several "mention markets” to resolve to “yes” on Polymarket, where users were betting on which words he would say. Market manipulation? Maybe. In this case, Armstrong almost certainly did not have a financial interest in those mention markets, but he did knowingly cause them to resolve a certain way.
Just a week ago, the Israeli government charged two individuals, one an army reservist, with misusing classified information to bet on whether Israel would strike Iran by a certain date. The charges are specifically about misusing classified information in the context of their affiliation with the army, not for violating market manipulation rules. Here, the bettors allegedly profited from inside information they had, but they were not in the position to cause the market to resolve in their favor (the bettor wasn’t, for example, the general in charge of picking the attack date). Insider trading? Yes, from a practical standpoint and without getting into the legal standards, if the allegations are true. Misuse of classified information? Same. But was it market manipulation? Outside of the legal technicalities, it’s hard to see how unless they moved the market dramatically with their bet. In this case, it seems more like a matter between the bettors and their employer (a government, in this case) than one for regulators trying to protect the integrity of the marketplace.
These nuances matter because insider trading and market manipulation will almost certainly be high on the list of priorities for Chairman Selig’s rulemaking process. One could imagine a multi-prong test: 1) Is the person in a position to influence the outcome of the market? 2) Is the person aware of the market’s existence? and 3) Did the person knowingly act with the intent to manipulate the market? If the answer to all three is “yes,” it seems reasonable for the CFTC to consider that market manipulation.
Finally, while we commend Selig’s recognition of prediction markets’ economic and social value, there may be a political risk to his combative approach. However sound his legal arguments, some members of the public may interpret his forcefulness as carrying water for the president (whose son advises both Kalshi and Polymarket and whose social media business partners with Crypto[.]com).
Further, Selig is currently the sole commissioner on the usually five-person commission, and the administration appears to be in no hurry to fill the other four seats. While this environment seems bullish for prediction markets, any liberalizing gains made over the next three years may be easily reversed if a future Democratic administration also contents itself with a sole commissioner leading the CFTC. Then again, Democrats have floated the idea of including “quorum” as a condition for passing market structure legislation in Congress – specifically conditioning new SEC or CFTC authority on the vacant seats being filled (the SEC is also currently staffed by three Republican-appointed commissioners with two vacancies). – Marc Hochstein and Alex Thorn
Base Leaves the ‘Superchain' for Its Own Tech
This week, Base, Coinbase’s Ethereum rollup, announced its migration away from Optimism’s OP Stack toward a newly developed unified stack purpose-built for the network. The Base team framed the move as necessary to accelerate “innovation, scaling and security.” While the OP Stack allowed Base to launch quickly and grow faster in the network’s earliest days, it also created a complex web of external dependencies across multiple teams, repositories, and partner integrations, the team said.
Since its July 2023 launch, Base has incorporated contributions from organizations including Optimism, Flashbots, and Paradigm. This helped the network introduce important features like Flashblocks, but increased coordination overhead and slowed development. By consolidating these components into a single, open, purpose-built codebase, Base aims to increase its shipping cadence (targeting six smaller, tightly scoped hard forks per year, double the current schedule), reduce protocol complexity so that the system can be understood and maintained by a smaller group of developers, and deploy high-impact changes more rapidly in coordination with Ethereum’s roadmap.
Base stated that the migration won’t compromise decentralization or security, emphasizing that it will remain a Stage 1 decentralized rollup while strengthening oversight through an expanded, independent Security Council. The team also framed the new stack as a public good, committing to keep the specifications and code fully open-source (forever) and encouraging alternative client implementations to support broader ecosystem resilience.
Our Take
The “what?” of the Base team’s announcement is less important than the “why?” given its timing against the CLARITY Act moving through Congress, Vitalik Buterin’s recent post on X about the future of the rollup-centric roadmap, and other exchange-backed rollups moving to decentralize.
In the near term, little changes beyond codebase unification and Base assuming full ownership of development. More important is the optionality the move creates. By internalizing the stack, Base removes external coordination constraints and gains the ability to implement structural changes later – whether that means decentralizing the sequencer, adding compliance-oriented controls, optimizing the network for regulated assets like tokenized securities, or anything else it deems worthy to implement. The stated rationale around faster shipping and reduced complexity is reasonable and makes sense for an organization as capable as Base and Coinbase, but the move also positions Base to respond quickly to some of the most prescient regulatory or commercial pressures without relying on upstream dependencies, notably around tokenized securities issuance and trading and the decentralization question. Galaxy Research’s Alex Thorn has highlighted this tension for Base and rollups writ large, noting that Section 302 of the CLARITY Act defines “non-decentralized finance trading protocols” in a way that might capture Base and similar networks, potentially subjecting them to direct oversight by market regulators.
Beyond what the move could mean for Base, it also raises a broader question about how other corporates launching onchain will evolve over time. Will fintechs and other companies building on public or “corporate” general-purpose chains eventually seek to control the full technology stack in order to dictate shipping cadence and feature development? In that sense, Base’s trajectory may offer a template: launch on an existing tech stack to reach market quickly, then transition to an internally developed platform once scale, requirements, or strategic priorities justify added control. – Zack Pokorny
Nakamoto to Buy BTC Inc. and UTXO Management
Nakamoto Inc. (NASDAQ: NAKA) agreed to acquire BTC Inc. and UTXO Management for ~$107 million in stock, in a deal that would diversify the publicly traded bitcoin treasury vehicle’s business lines. BTC Inc., the largest Bitcoin-native media and events company, runs The Bitcoin Conference; UTXO Management is an advisor to 210k Capital, a bitcoin-focused hedge fund. The transaction is expected to close this quarter.
Cryptocurrency enthusiasts likely remember Donald Trump’s iconic speech at the Bitcoin Conference in Nashville in 2024, in which he proclaimed that America would become a "bitcoin superpower” and the “crypto capital of the world” if elected. Trump's presence was largely thanks to the BTC Inc. team's diligent work. Many prominent speakers, including Ross Ulbricht, have appeared at BTC Inc. conferences, which are typically the largest Bitcoin events of the year.
As of Feb. 19 morning in New York, BTC is trading at $66,400 and NAKA at $0.25. Following a May 2025 peak, the stock has declined more than 98%, and in December 2025 the company received a Nasdaq delisting notice after trading below $1 for 30 consecutive business days.
Nakamoto now has until June 8 to regain compliance by closing at or above $1 for at least 10 consecutive trading days, or else lose its listing. Companies in similar situations often pursue reverse splits to remain listed.
Our Take
This deal is more important than it initially appears. As we have argued frequently at Galaxy Research, the bitcoin treasury model needs to evolve to be sustainable.
To date, most public BTC treasury vehicles have been structurally simple: raise capital, acquire bitcoin, and just hope and pray that price appreciation and market net asset value (mNAV) expansion drives equity performance. That model is inherently reflexive. As we saw over the summer, equity valuations detached meaningfully from net asset value to the upside. Now with BTC down significantly from its all-time high, equity valuations are trading below the net asset value of their holdings.
By acquiring BTC Inc. and UTXO Management, Nakamoto appears to be introducing a second earnings source to its structure. While some treasury companies operate solely as balance sheet proxies for digital asset exposure, Nakamoto is moving toward an integrated operating model that includes businesses with recurring revenue.
BTC Inc. brings scale. In fiscal 2025, management estimates combined revenue of approximately $78 million across BTC Inc. and UTXO. BTC Inc. itself posted 106% revenue growth last year. The company has ~6 million aggregated social media followers, and generated 1.13 billion social impressions in 2025. Its flagship conference series drew roughly 67,000 attendees in 2025.
The best known of BTC Inc.'s media brands is Bitcoin Magazine, one of the longest running publications in the field. (A young Vitalik Buterin co-founded the magazine years before he created Ethereum).
UTXO Management has $128 million in assets under management as of Jan. 31 and according to the parties, its returns outperformed bitcoin by 59% last year. While these numbers are modest relative to Nakamoto’s treasury exposure (5,398 BTC worth ~$360 million), they introduce operating cash flow that is not directly tied to short-term BTC price movements.
Whether the acquisition ultimately creates per-share value will depend on execution and capital allocation going forward. But strategically, this transaction represents one of the few serious attempts to evolve the DAT model beyond a one-dimensional treasury proxy. That alone makes it worth watching. – Will Owens
Charts of the Week
The Crypto Fear & Greed Index, a composite measure of market sentiment derived from volatility, momentum, social media, surveys, dominance, and Google Trends, has dropped to historic lows. On Feb. 7, it fell to 5, the lowest reading in the dataset's eight-year history. The index has spent much of the past month in the single digits and low teens, a level of sustained panic that matches the COVID crash (when it fell as low as 8) and the December 2018 capitulation (10).
This sentiment aligns closely with onchain data. The Fear & Greed Index and BTC supply in profit ( the percentage of coins held above their purchase price) share a strong positive correlation of 0.78 (where 1.0 is perfect alignment), meaning they move largely in lockstep.
Meanwhile, onchain profitability is deteriorating rapidly. Nearly 46% of Bitcoin's circulating supply is now held at a loss as BTC has fallen from $110K to below $70K. The price chart shows the familiar pattern: the green "in profit" zone compresses as the red "in loss" zone expands during sell-offs.
Meanwhile, onchain profitability is deteriorating rapidly. Nearly 46% of Bitcoin's circulating supply is now held at a loss as BTC has fallen from $110K to below $70K. The price chart shows the familiar pattern: the green "in profit" zone compresses as the red "in loss" zone expands during sell-offs.
In Other News
👋BGD Labs is leaving Aave
🪰Dragonfly closes on new $650m venture fund
👔Goldman Sachs CEO says he owns bitcoin
🏦U.S. banks are building a tokenized deposit network
🏹Apollo agrees to buy up to 90m Morpho tokens over 4 years
🇺🇸Crypto lender Nexo returns to the U.S.
🪙ProShares launches money-market ETF for stablecoin issuers
👀Crypto social platform Zora launches ‘attention markets’ on Solana
💧Hyperliquid starts its own lobbying group with $29m in HYPE
🕙CME to allow 24/7 trading of futures and options on digital assets
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