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In this week's edition, Alex Thorn looks at the recent net outflows from spot bitcoin exchange-traded funds; Thad Pinakiewicz looks at the latest prediction market insider trading arrest; and Marc Hochstein reflects on crypto’s cameo in the pope’s encyclical.
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Market Update
The total crypto market cap stands at $2.54tn, down 2.70% from last week (when it stood at $2.61tn). Bitcoin's network value is 4.76% of gold's market cap. Over the last seven days, BTC is down 4.81%, ETH is down 5.55%, and SOL is down 5.48%. Bitcoin dominance is 58.16%, down 105 basis points from last week.
It’s Outflow Szn for Bitcoin ETFs
Bitcoin ETF flows have turned negative for the year. U.S. spot bitcoin ETFs reversed a rally in flows that began in the third week of April to turn negative for 2026 after Wednesday saw net outflows of -$723.5m, the worst outflow day of the year and the fifth biggest outflow from spot BTC ETPs ever.
The drawdown tracks the BTC price this year relatively closely and this week’s net-negative turn shows the original and most valuable cryptocurrency’s lack of momentum in a risk market filled with voluminous other trending investment themes. Just Thursday, U.S. stocks reached new all-time highs on the back of positive news about a potential deal between the U.S. and Iran to reopen the Strait of Hormuz and a rally in technology names. Investment narratives around artificial intelligence, chip manufacturing, and domestic semiconductor reshoring continue to absorb marginal institutional dollars, leaving Bitcoin to compete for a smaller slice of risk-on flows than at any point since the spot ETF launches in January 2024.
Compounding the tepid ETF bid has been a meaningful decline in the pace of spot accumulation by Strategy (MSTR), the world’s largest public holder. During the company’s Q1 2026 earnings call on May 5, Executive Chairman Michael Saylor disclosed that the firm may sell bitcoin in some instances.
The firm’s ability to use the MSTR at-the-money (ATM) offering mechanism to raise cash for purchases is currently closed by its own stated metric: Strategy’s own dashboard shows 1.20x mNAV (and it could be lower by other calculation metrics) but the company says MSTR needs to trade above ~1.22x mNAV to enable the ATM. Strategy has successfully used its perpetual, preferred, dividend-yielding security STRC to generate cash for BTC purchases, but its own ATM capacity is gated by the security trading at or near its $100 par and it has mostly failed to do so over the last two weeks.
Our Take
The two largest persistent sources of spot BTC demand over the past 18 months (the ETF complex and the Strategy treasury bid) are essentially pulling back at the same time. While some crypto market narratives have traded particularly well this year (such as AI-adjacent coins, perpetual swap DEXes, and privacy coins), BTC has not benefited from those narratives and, in any case, coins in those categories are much smaller than bitcoin. When combined with the competition BTC faces from “hotter” investment themes in the broader market, it’s possible that this bitcoin bear market has more time to go. Comparing to past cycles adds weight to the theory.
Still, at $73.4k at the time of writing, BTC performance still looks strong over longer time horizons. Markets and people are cyclical, and bitcoin has proven time and time again to roar back with a vengeance. Despite the current weakness, and inability to march back towards $100k, there are plenty of reasons to believe the bullish bitcoin story is nowhere close to finished. – Alex Thorn
Seeking Alpha, Finding Trouble
A Google engineer was charged this week with what is, aesthetically, the most 2026 crime imaginable: allegedly insider trading on Polymarket about the top Google search terms. Not a hot tip on Snowflake stock. Not the details of a closed-door meeting. Prediction contracts about what people searched for most on Google that year.
The U.S. Department of Justice says Michele Spagnuolo, a Google software engineer living in Switzerland, traded under the handle “AlphaRaccoon” and used confidential internal company information to bet on Google-related Polymarket contracts. Prosecutors say he risked about $2.75 million and made more than $1.2 million.
Our Take
The old insider-trading case was: “I know the merger is happening.” The new one is: “I know which singer’s search velocity will clear Google’s proprietary year-end ranking methodology.” Somewhere a lawyer adds “prediction markets” to the employee trading policy with a sigh. Somewhere a Senator grumbles about the Congressional chamber’s self-imposed ban on prediction markets trading after a meeting and buys call options instead.
If a market can price anything, then anything confidential can become material nonpublic information, or at least MNPI-adjacent: military plans, sports injuries, Google dashboards, regulatory decisions, product calendars, weather sensors, diplomatic timelines, maybe even your boss’s facial expression.
The international examples are just as stark. Israel has reportedly arrested and indicted people, including military-linked individuals, over Polymarket bets tied to military operations. France’s weather agency filed a police complaint after suspicious weather-market bets coincided with alleged sensor tampering. The prediction-market abuse surface is not just trading on confidential information, but also manipulation of market resolution.
This is the line we have been trying to draw. Galaxy Research’s Marc Hochstein laid out our view on reasonable prediction-market regulation in a comment letter to the CFTC this year. The answer is not “ban the markets because information is dangerous.” The answer is to distinguish between information discovery and information misappropriation.
The whole social case for prediction markets is that they pay people to find truth. The market is useful precisely because someone, somewhere, knows more than the median pundit, and the market pays them to say so.
So “informed trading” cannot be the crime. Informed trading is the product. The line is not whether you know something other people do not. The line is how you know it, what duties you owe, and whether you are merely predicting the event or helping cause it.
Polymarket, to its credit, seems to understand the assignment and has been publishing market-integrity policies, referring suspicious activity, and working with law enforcement. It’s also been offering carrots for users to go through know-your-customer identification, in the form of faster trades through colocation and early access to a beta product (though it hasn’t mandated KYC.) The Google case, the France weather station investigation, and the Israeli war-market reporting all point in the same direction: the platform is becoming a regulatory focal point. Not to mention a favorite punching bag for journalists and politicians.
Is Polymarket just trying to avoid the regulatory sword of Damocles, or is it trying to become something more like CME or Intercontinental Exchange for prediction markets — a trading venue with real self-regulatory obligations? (Recall that ICE, parent of the New York Stock Exchange, is on the startup’s cap table.) Not formally. But functionally, it is acting like it wants to write the first draft of prediction-market self-policing. An actual SRO model would require, among other things, clear lines drawn by the regulators between “informed trading,” “inside information,” and “you literally caused the event.” Hopefully a forthcoming rulemaking from the CFTC will provide just that.
There is also a broader crypto point here. The easy narrative is “crypto enables crime.” But crime also happens in banks, spreadsheets, Signal chats, and golf carts. The more interesting point is that onchain crime is often easier to reconstruct because the transaction history is public. Tether, a frequent target of “crypto enables crime” ire, is also one of the industry’s most active law-enforcement partners. In April, Tether helped U.S. authorities freeze $344 million of USDT; more broadly, it claims cooperation with 340+ law-enforcement agencies in 65 countries, supporting 2,300+ cases and freezing more than $4.4 billion in assets.
The reality is that many of these firms are among law enforcement’s most useful private-sector partners. They know how to read the chain, cluster wallets, trace flows, and explain what happened in a way investigators can use. Cash leaves a witness problem: one set of sealed lips and the trail runs cold. Blockchains (mostly) leave breadcrumbs so immutable that Hansel and Gretel would have ended up in a Mother Goose tale, not a Grimm one.
We will also take the smallest possible victory lap before we close, because we called this. In Galaxy Research’s 2026 predictions, I forecasted there would be a federal investigation into insider trading or game fixing connected to a prediction market. But this was not an insinuation that Polymarket is bad. It was a prediction that prediction markets would become important enough to matter to regulators.
Prediction markets are not going away. They are too useful, too fun, and too good at incentivizing information discovery. But the Google case is a warning label: once everything can be a market, everything can start to look like insider trading.
Bloomberg columnist Matt Levine’s old joke is that everything is securities fraud. The 2026 update is that everything is MNPI. – Thad Pinakiewicz
Pope’s Encyclical Briefly Mentions ‘Innovation’ of Crypto
Most discussion of Pope Leo XIV’s first encyclical, released Sunday, focused on his comments about artificial intelligence. Receiving less attention was a brief mention of cryptocurrency in a paragraph about finance’s role in society.
“In recent years, finance has increased in importance and has undergone significant innovation, driven partly by the introduction of cryptocurrencies,” begins Article 160.
For the rest of the 152-word paragraph, the pope discusses finance in general, including the misdeeds of intermediaries and the importance of credit to support “the real economy” (in contrast to “finance for its own sake”). In the subsequent Article 161, he segues into a discussion of wealth inequality.
Our Take
The pope is one of the most influential people alive, and an encyclical is perhaps his most significant way of weighing in on major issues, a policy and moral statement to the world. Encyclicals have no fixed cadence; they are published as the pope sees fit. Whenever one is published, it's a significant event. A mere mention of cryptocurrencies, once an obscure niche, in such a document is therefore remarkable.
We are not theologians and are wary of jumping to conclusions or putting words in a holy man’s mouth. But it is worthwhile going through Article 160 line by line and reflecting.
Consider the opening sentence. He calls crypto an example of “innovation.” That should probably not be read as an endorsement. Looking at other parts of the encyclical, particularly the passages about AI, it is clear the pope does not see innovation as an unalloyed good. “Technological innovations, including artificial intelligence, are not neutral, for they can either foster participation and justice or exacerbate inequality, control and exclusion,” reads a key passage in Article 85.
In Article 160’s second sentence, the pope notes his predecessors “have highlighted how the financial intermediation sector, ‘when operating without the necessary anthropological and moral foundations, has not only produced manifest abuses and injustice, but also demonstrated a capacity to create systemic and worldwide economic crisis.’” Some may be tempted to read this sentence as supporting crypto’s project of mitigating reliance on middlemen or bypassing them altogether. Perhaps. But...
Article 160 goes on: “It is likewise the case that income from capital risks replacing income from labor, which is often confined to the margins of the economic system's primary interests. Yet savings transformed into credit for the real economy, thereby creating both jobs and self-employed work, remain central for development and the investments that must accompany ongoing transitions. The social function of credit remains irreplaceable. Finance for its own sake is fundamentally different from finance aimed at the development, creation and evolution of work.”
The church's concern about economies rewarding ownership over dignified work dates back at least to the previous Pope Leo’s 1891 encyclical. It’s clearly heightened by the potential for widespread job losses from AI... and, possibly, by certain aspects of crypto.
Memecoin trading, “looping” of borrowed tokens, and other “degen” activities could be seen as textbook examples of “finance for its own sake.” A common knock on stablecoins is that they could siphon deposits from community banks, reducing the salubrious types of lending Pope Leo mentions (although, as Galaxy Research’s Thad Pinakiewicz showed in a recent report, that threat is likely overblown). We hardly need to remind readers of the ransomware attacks, fraud, and other extractive mischief that leverage crypto.
If there’s a takeaway for crypto from this historic document, perhaps it’s that the industry should reprioritize supporting the real economy, something it can and has done. Bitcoin (day-to-day volatility notwithstanding) and more recently stablecoins have allowed people in countries like Argentina and Venezuela to shield their savings from hyperinflation. Bitcoin's peer-to-peer, censorship-resistant properties empower political dissidents in repressive regimes. More speculatively, by providing the capital formation, coordination mechanisms, and financial rails for open-source, permissionless AI, blockchains could mitigate the concentration of power the pope worries about.
To borrow from him, crypto takes on the characteristics of those who use it. – Marc Hochstein
Other News
📆SEC said to delay innovation exemption for tokenized stocks
📈Sharplink, Forward Industries to join Russell 2000 and 3000 indexes
🍌U.K. sanctions Justin Sun’s HTX (aka Huobi) over alleged Russia ties
💳Mastercard secures New York BitLicense as it expands crypto services
🇬🇪Tether to launch GELT, ‘official’ stablecoin for Republic of Georgia
🙏R.I.P. Nathan Allman, founder and CEO of Ondo Finance
Charts of the Week: Mysteries of the Bitcoin Blockchain
Why would someone set $8.3 million on fire? That is essentially what one or more unknown actors did Monday. Five bitcoin addresses sent ~107 BTC to an old burn address, making the coins provably unspendable. Their motivations can only be conjectured. We have our theories but none of them are good.
Another onchain mystery: Who is “Noah Doe,” the pseudonymous plaintiff who wants a New York court to grant him and two Wyoming LLCs legal ownership of ~3.8M BTC ($293B), including coins long believed to be Satoshi’s? Whoever Doe is, he has chosen a novel way of serving notice on the defendants: dusting their wallets, the same way he put them on alert last year that their property was supposedly “abandoned.”
For more on this curious case, read our latest in-depth report.
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