The Breakdown - Why the Internet Crash Made Bitcoin Look Stronger

Episode Date: October 22, 2025

A massive AWS outage took down huge portions of the internet this week, and crypto wasn’t spared — Coinbase’s Base network went offline, MetaMask users saw zero balances, and much of the industry’s infrastructure stumbled. On today’s Breakdown, NLW explores what the event revealed about crypto’s dependence on centralized services, why Bitcoin and Ethereum’s uptime tell a different story, and how it’s fueling renewed debate about decentralization just as regulators and institutions weigh the next phase of the market. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/@TheBreakdownBW Subscribe to the newsletter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://blockworks.co/newsletter/thebreakdown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownBW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Tuesday, October 21st. And today we're talking about the crypto fallout of the AWS outage. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod.

Well, I'm sure that you know this by now, but on Monday morning, Amazon Web Services suffered a major outage that took down half the internet and also toppled a significant portion of the crypto ecosystem. Coinbase's base network went down, as did the centralized exchange. Metamask was also impacted with many traders logging in to see a zero balance and thus having a small heart attack. The event, of course, revealed a core issue with using crypto as a replacement financial network with the current state of infrastructure.

Tim Copeland of the block posted, right, so I can't pay with my metamask card because the decentralized side of it ain't working due to AWS. I see. Alcoin Psycho wrote, got to love seeing 95% of crypto down because of an AWS outage. Very decentralized. Great work, lads. Max Lee, the CEO of Decentralized cloud platform Urt, called this event a wake-up call for the industry. He said, this highlights why decentralized solutions are essential. Decentralized cloud computing offers a powerful alternative by distributing data and processing across a network, reducing the risk of single points of failure that can lead to complete service disruptions. Bitcoin, of course, didn't miss a block,

maintaining its 99.9% uptime reputation. While this wasn't the doomsday scenario that some Bitcoiners planned for, it still was very instructive. One of the big pieces of fud that refuses to die is the question of what happens to Bitcoin if the internet goes down. Well, we don't know that for sure, but what we did see is AWS taking down half the internet, including a huge section of the traditional banking rails, with Bitcoin still working throughout due to its decentralized nature. Mason Carter of Acropolis Bitcoin posted, Today, my favorite burger spot in Austin asked me about Bitcoin payments because the AWS outage has them cash only. I watched dozens of customers turn away because they didn't have cash.

Bitcoin payments as a backup plan for both businesses and individuals is underappreciated. It's worth noting that Ethereum also suffered no downtime, nor did many of the more decentralized chains. The issues were largely contained to Ethereum L2s. Now, to be clear, there's nothing inherently wrong with running all of a blockchain's validators on AWS, but it does highlight the deficiencies of current crypto infrastructure. Coinbase has never pretended that base is anything other than a centralized chain, where they control the validator network. Base also isn't optimized for catastrophic risk. It's built for speed and convenience. But these are all tradeoffs that are made very clear when AWS falls over and takes a ton

of financial infrastructure with it. Ultimately, the event highlights what makes Bitcoin different and why the idea of running personal nodes and self-custody is worth protecting. When Amazon can bring down this much of the world, it's nice to know that you have some permissionless decentralized money just in case. In Washington, we have some movement on the market structure bill with crypto executives heading to D.C. for a meeting with Democrat senators. Earlier this month, Democrats put forward their alternative framework for the market structure bill and signaled a desire to work closely with Republicans on a bipartisan draft. That framework included tough compliance standards for Defi that many in the industry believed would function as a de facto ban. As a result,

the current reports state that negotiations between the two parties have stalled out. The roundtable was put together by pro-Crypto Democrat Kirsten Gillibrand. That could indicate it's designed to serve as a coalition building session. Public statements made it seem like Democrats genuinely wanted to get the bill passed, so perhaps the hostility towards Defi was inadvertent. It's also possible that Gillibrand believes that crypto executives could explain more clearly why the proposed framework isn't workable. Certainly the guest list is stacked with heavy hitters. The CEOs of Coinbase, Cracken, Galaxy, and Circle will all be present, alongside executives from another half dozen companies and crypto projects. The roundtable will be held on Wednesday,

so we'll know a little more the following day. For now, seems like a positive, that could rekindle hope that market structure will get passed before the end of the year. Speaking of Coinbase, that company has put forward a proposal to overhaul the Treasury's rules around the Bank Secrecy Act. Earlier this year, the Treasury put out a request for comment on innovative methods to detect illicit activity involving digital assets. The BSA has long been a concern in the crypto industry, with CoinCenter in particular taking it on as a major reform push. The arguments for reform are generally twofold. First, that the law is horribly outdated. When it was passed in 1970, it featured a reporting threshold

of $10,000 around the average annual household income. That threshold hasn't changed in 55 years since, leading to a huge volume of suspicious activity reporting of questionable value. More generally, the rules haven't been updated to reflect the rise of digital banking and computerized compliance systems. Second, CoinCenter argues the entire premise of the law violates the Fourth Amendment prohibition on unlawful searches. Coinbase's proposal leans much more towards the first point, arguing that BSA reporting can often be counterproductive, doing little to stop criminal networks while putting regular people at risk. Coinbase chief legal officer Paul Gruel wrote,

When bad guys innovate in financial crime, good guys need innovation to keep pace. He summarized their proposal for crypto-anti-money laundering rules along four major points. First, establish a safe harbor for firms who adopt AI to streamline their compliance and reporting. Second, issue guidance that recognizes and defines the expectations for API-driven compliance technology.

Coinbase is suggesting that privacy and interoperability standards should be set as well as guidance on acceptable use cases. Third, the Treasury should recognize decentralized ID and the use of zero-knowledge proofs as a valid form of KYC. Finally, the Treasury should publish guidance that recognizes and incentivizes the use of blockchain tracking as a form of AML compliance. Legacy, Internet, and infrastructure are brittle, plagued by downtime, coverage gaps, and outdated financing models.

Communities and builders are left behind while capital sits locked out. Althea is changing that. Since 2018, their technology has powered resilient, sustainable networks across the U.S. and abroad. With Althea L1, they built the world's first blockchain purpose-built for utilities and telecom, turning infrastructure into a transparent, investable asset class. Through liquid infrastructure, networks can now be financed in real time, operated more efficiently, and scaled to meet the $3 trillion telecom and utilities market. This is fintech for infrastructure, connecting capital directly to builders and returning

revenue seamlessly to funders. No middlemen, no bottlenecks, just sovereign, resilient infrastructure that works for people, communities, and investors alike. Learn more at Althea.net and find them on Crackin to join the future of infrastructure finance. Court of the argument for reform is that the current rules and low thresholds for companies to flood regulators with relatively low-value reports makes it impossible to sift through proactively while forcing huge compliance costs on financial firms. The KYC rules are also extremely broken requiring financial institutions to maintain huge droves of personal information

that are vulnerable to cyber attacks. CoinCenter have filed a similar proposal, focused on the privacy concerns around the proliferation of stablecoins, which could require large-scale KYC for digital cash. Coincenders near Ajagrawal posted, forcing the square peg that is traditional AML surveillance into the roundhole of public stablecoin transactions creates a financial panopticon that's bad, if not worse, for America's privacy than a hypothetical CBDC could be. Compliance is looking like it will be one of the big sticking points in negotiations around the market structure bill, so these proposals could be a big step to resolving the issue.

Ultimately, there are very few in the crypto industry that are arguing for zero compliance, but at the same time, there's a recognition that the BSA rules don't fit neatly with decentralized systems with no clear controlling entity. If it feels a little gloomy to you out there, institutional research notes continue to predict that the flash crash was a blip rather than the end of the cycle. On Monday, T.D. Cowan wrote, while cognizant that the recent episodes caused intense financial hardship for many investors, what strikes us is how well the underlying ecosystem functioned. Though it was the largest single-day liquidation event ever with open interest halved across venues, most crypto exchanges operated with little or no downtime. This week's

price action has been a little limp, with Bitcoin fluctuating between 108K and 110K. There's no sign of a strong recovery, but we're also not seeing a continued breakdown as you might expect if the cycle was truly over. Reflecting on the crash, TD Cowan added, while less reputable tokens were decimated, Bitcoin and Ethereum held up well enough in our estimation. Bitcoin, for example, briefly reached a trough of down 15%, only to close just 8% down on the day. They retain a bullish stance calling for 141,000 Bitcoin by December. Separately, Coinbase Institutional put out a report stating that 67% of their clients are bullish. The survey had a relatively small cohort of 124 participants, but still optimistic data that the institutions are still in. Head of research, David Duong, wrote that the cycle

still has room to run, but that participants are a little more cautious after the flash crash. He wrote, we still see resilient liquidity conditions, a strong macro backdrop, and supportive regulatory dynamics. Additional rate cuts from the Fed, as well as greater fiscal and monetary stimulus in China, could incentivize more investors to come off the sidelines. Finally, a little fun one before we get out of here. Coinbase has paid 25 million. to see the return of their favorite podcast. On Monday, Coinbase paid $25 million to buy an NFT issued by Kobe in May. The NFT stated, the holder of this NFT can compel Kobe and ledger status into performing, like monkeys, eight episodes of Up Only TV. For those of you who weren't

around during the last cycle, Up Only was a beloved interview show covering major events in the crypto space. In one memorable moment, Martin Schrelli told Doe Kwan, jail isn't that bad. The show wrapped up in December 2022 once the entire industry was reduced to ashes, and Kobe didn't seem all that enthusiastic about the prospect of eight more episodes, posting, ah, man, WTF. He later added, I'm too old to have a crypto podcast. I'm about to be out here looking like Gary V. Meanwhile, Ledger status has been playing around with Earth-moving equipment rather than crypto for most of the last three years, but seems pumped for the return. He posted, I have to remember how to hook up the equipment. Nothing has changed. We're so back. Polymarket noted that this could be

the largest podcast deal ever, writing Kobe being paid more per episode of Up Only than Joe Rogan. Breaking on Tuesday morning, it turned out Coinbase wasn't done throwing money at Kobe. They announced that they had bought his angel investing platform Echo for $375 million. Kobe wrote, When I started building Echo two years ago, I knew it had a 95% chance of failing. To be honest, I couldn't really imagine any other outcome, but I thought at least it may be a noble failure worth attempting. That near certain failure has turned into one of the largest M&A deals in crypto history.

This is also the eighth acquisition for Coinbase so far this year as they build out their ecosystem for what comes next. Kobe said that Echo will remain as a standalone platform and that the job's not finished. Crypto Twitter had one big takeaway with the massive deals. DC investor wrote, Coinbase isn't paying $3 million per up-only podcast episode in a bare market, we're going higher. Now, for those of you who are screaming, Cycle Top,

it's pretty clear that what's going on here is that the deal for Echo was a $400 million deal, and they decided that this $25 million NFT version was a fun way to do part of it. At least that's what it seems like to me. In any case, exciting stuff for Kobe and the team at Echo. So for now, that's going to do it for the breakdown. Appreciate you listening, as always, and until next time, be safe and take care of each other. Peace.