The crypto sector began the week with significant developments across financial markets, national infrastructure, and emerging technology regulations. Major US spot Bitcoin and Ether exchange-traded funds (ETFs) recorded substantial outflows following a steep weekend market crash, while Bhutan confirmed a major migration of its national digital ID system to Ethereum. Meanwhile, California introduced new safeguards targeting AI chatbots to protect young users.
Major ETF Outflows Hit Bitcoin and Ether Funds
US spot Bitcoin and Ether ETFs experienced combined outflows surpassing $755 million on Monday, reflecting shaken investor sentiment after heavy weekend liquidations.
Bitcoin ETFs saw net outflows of $326.52 million. Fidelity’s Wise Origin Bitcoin Fund (FBTC) reported $93.28 million withdrawn, and Grayscale’s Bitcoin Trust (GBTC) recorded $145.39 million exiting. Other funds such as Ark 21Shares Bitcoin ETF (ARKB) and Bitwise Bitcoin ETF (BITB) registered outflows of $21.12 million and $115.64 million respectively.
However, BlackRock’s iShares Bitcoin Trust (IBIT) stood out as an exception, attracting $60.36 million in inflows despite wider market declines. Total cumulative inflows into Bitcoin ETFs still remained positive at $62.44 billion, with combined net assets reaching $157.18 billion, representing 6.81% of Bitcoin’s total market capitalisation.
Ether ETFs were similarly affected, losing $428.52 million. BlackRock’s iShares Ethereum Trust (ETHA) led the decline with $310.13 million in outflows, followed by Grayscale’s Ethereum Trust (ETHE) at $20.99 million and Fidelity’s Ethereum Fund (FETH) at $19.12 million. The withdrawals mark one of the sharpest ETF outflow sessions in recent months.
Bhutan Moves National ID System to Ethereum
Bhutan confirmed the migration of its national self-sovereign identity (SSI) system from Polygon to Ethereum, marking a significant milestone in government blockchain adoption.
The transition will support nearly 800,000 citizens in verifying identities and accessing official services through blockchain technology. According to Ethereum Foundation President Aya Miyaguchi, the integration with Ethereum is complete, with full credential migration expected by the first quarter of 2026.
Miyaguchi praised the initiative, describing it as the first instance of a sovereign nation fully committing to Ethereum-based digital identity infrastructure. Blockchain-backed ID systems are considered promising due to their immutability, transparency and enhanced privacy, especially when combined with zero-knowledge proofs.
Blockchain Adoption Gains Government Traction
Bhutan’s move highlights growing governmental confidence in Web3 infrastructure for digital administration. By adopting a public blockchain, Bhutan aims to provide citizens with secure, verifiable control over their personal data. The initiative may encourage other nations to explore similar models, shifting from private or consortium chains to established public networks such as Ethereum.
The rollout is expected to test the scalability and real-world resilience of blockchain in critical national services, potentially setting a precedent for future civic technology projects.
California Takes Action on AI Chatbot Safety
California Governor Gavin Newsom signed new legislation imposing regulatory safeguards on social media platforms and AI companion chatbots, focusing on the protection of minors.
The bill, SB 243, introduced by Senators Steve Padilla and Josh Becker, mandates age verification mechanisms, warnings for AI chatbot interactions and stricter protocols to address risks related to suicide and self-harm.
Padilla highlighted concerning examples in which children engaged with AI bots that encouraged harmful behaviour. The law requires clear disclosure when users interact with AI-generated entities, emphasising that such systems may not be appropriate for children.
Wider Implications for Tech and Web3 Platforms
The legislation is expected to affect both traditional social media platforms and decentralised services operating within California. Companies will face tighter scrutiny over claims of AI systems acting autonomously, reducing opportunities to evade liability.
The regulations could influence Web3 platforms offering AI-driven social or gaming experiences, raising questions about user safety in emerging digital environments.
As crypto markets confront volatility, governments and institutions continue to shape the future of blockchain and AI, signalling a period of transformation across technology and regulation.
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