Friday, 9 September 2022

Market Summary

Market Summary 9 September 2022

Bitcoin Price: US$ 19,319.77 (+0.14%)
Ethereum Price: US$ 1,635.37 (+0.33%) 


Wake Me Up When September Ends

  • In last week’s edition of Market Insights, “Markets Gear Up For Dreaded September”, we spent some time reflecting on the Jackson Hole comments, and more importantly, the market’s reaction to these comments. Suffice to say, the market was caught off guard by the seemingly hawkish rhetoric coming from Powell. This was evidenced by the sharp market pullback sending BTC back below its 2017 ATHs, and the repricing in the odds of a 75bps rate hike at the September FOMC meeting at nearly 86%.
  • Last week, we mentioned the historically poor performance that BTC usually experiences in September. On average, BTC typically declines just over 6% during the month of September, with several instances of steeper declines. Given the recent bear market rally, market structure analysis, and the subsequent comments coming from Jackson Hole, we reiterated our cautiousness heading into September.
  • We focused on two key areas of the market in terms of our analysis which led us to having this cautious outlook; market psychology and market positioning.
  • “The reaction to the Jackson Hole comments was reminiscent of the reaction markets had in early June to the much hotter than expected CPI print. At the time, it appeared as though everyone (Powell included) had taken the stance that inflation might be peaking. When the reality of higher-than-expected inflation shattered the market’s expectations, asset prices headed lower. Market participants ultimately had to reassess and reposition for the new reality, resulting in a large selloff.”
  • “Over the last 3-months, we have seen risk appetite return to crypto markets as risk assets rallied across the board. Remember, at some point, buyers become future sellers…. BTC now finds itself desperately holding onto the lower bound of its 3-month consolidation range. This also means that almost everyone who has bought and held Bitcoin over the last 3 months (and over the last 2 years by default) is now underwater, or off-sides in their positioning to some degree. Should prices continue to move against the majority of market participants, positions will need to unwind.
  • In addition to September being the most challenging month for BTC performance, it is also turning out to be a challenging month from a macroeconomic standpoint as well. As of now, all eyes are likely on the August CPI numbers slated for September 14th. Just two weeks later the all-important September 27th-28th FOMC meeting will take place. As we have commented on in the past, asset markets seem to be oscillating between these important macro events, which have often been the catalysts for impulsive price moves this year.


ETH Merge will change the way enterprises view Ethereum for business

  • Industry experts predict that the Ethereum Merge, which is scheduled to take place on Sept. 14, will likely improve enterprise adoption. Paul Brody, global blockchain leader at EY, told Cointelegraph that while the Merge will not affect most enterprise use cases that are presently in use, it will change how businesses perceive Ethereum. He said: 
  • “For years, competing layer-1 networks have talked about how Ethereum can’t get the Merge done. The incredible organizational maturity of Ethereum has been working nicely in the background to do it in a careful and professional manner. As an enterprise, that’s the kind of institutional maturity I want to see.”
  • Although the Merge has been in development for several years, Brody explained that upgrades on mission-critical infrastructure should never be rushed. As such, he believes that this will remain a key point for businesses using the Ethereum network. “I think future efforts to dismiss Ethereum won’t get much airtime in the post-Merge era,” he said. 


What the Ethereum Merge means for the blockchain’s layer-2 solutions

  • Bitfinex chief technology officer Paolo Ardoino believes the Merge won’t have any impact on L2s as the Merge won’t solve the scalability solutions immediately. He told Cointelegraph that even after the completion of the third phase of the Ethereum transition, when it becomes monumentally scalable, L2s will still find a place in the ecosystem. He explained:
  • “It will be business as usual for L2s. These solutions still have key value for short, medium and long-term scalability. L2s will still be needed to fulfill the growing demand and usage of blockchains across the globe. Even 100,000 transactions per second would not be sufficient to meet true global demand and adoption.”
  • Anton Gulin, global business director at AAX Exchange, told Cointelegraph that L2s wouldn’t face many issues or see a need for great technical changes as the translation is two years in the making, so L2 chains are already prepared. 
  • “The more significant point is how successful the Merge would be and whether it can meet the momentum. With the more significant investments flowing into space, we can expect even more performing solutions, regardless of what will happen after the Merge. The rest of the L2s would either adapt or seize to exist,” he explained.
  • It’s a general misconception that the Ethereum scaling solutions would eventually make L2 solutions redundant or of no use, but a majority of L2 solutions such as Polygon have said that the change of consensus for Ethereum won’t really cut down the need for such L2 scaling solutions. In an official blog post, the protocol said:
  • “While the merge does pave the way for sharding, this future upgrade will not be enough to scale Ethereum. In fact, Polygon will benefit from it, and it will boost the performance of our scaling solution.”


Aave devs look set to receive $16.3M via retroactive funding

  • The decentralized autonomous organization (DAO) behind the decentralized finance (DeFi) platform Aave has accepted a proposal to reward members from Aave Companies with $16.28 million in retroactive funding for their role in the development of Aave Protocol v3.
  • Voting for the proposal began on Tuesday and, at the time of writing, has already passed 667,000 votes in favor of the funding, more than doubling the 320,000 required. The vote is set to end on Sept. 8.
  • According to the initial proposal, which was first pitched on Aug. 10, the Aave Request for Comment (ARC) sought “retroactive funding” for work in developing the v3 protocol.
  • The $16.28 million consists of $15 million for work performed by the developers over the course of more than one year and $1.28 million for costs paid to third-party auditors. The money will be given to members of the firm behind the popular DeFi protocol, Aave Companies.
  • The funding will be made up of a combination of AAVE tokens, Dai (DAI), Tether (USDT), USD Coin (USDC), alternative stable assets such as Frax stablecoin and higher volatility assets like Synthetix following the passing of the proposal.


Ether price could ‘decouple’ from other crypto post Merge — Chainalysis

  • Crypto analytics firm Chainalysis has suggested that the price of Ether (ETH) could decouple from other crypto assets post-Merge, with staking yields potentially driving strong institutional adoption.
  • In a Wednesday report, Chainalysis explained that the upcoming Ethereum upgrade would introduce institutional investors to staking yields similar to certain instruments such as bonds and commodities while also becoming much more eco-friendly.
  • The report said ETH staking is expected to offer a 10-15% yield annually for stakers, therefore making ETH an “enticing bond alternative for institutional investors” considering that treasury bonds yields offer much less in comparison.
  • “Ether’s price could decouple from other cryptocurrencies following The Merge, as its staking rewards will make it similar to an instrument like a bond or commodity with a carry premium.”


Crypto Terra Luna Classic Surges as Traders Speculate on New Supply Burn Rule

  • Luna classic (LUNC), the renamed native token of the Terra blockchain that dramatically imploded in May, is rising in value as traders bet that a soon-to-be implemented rule may breathe some life into the much-maligned token.
  • LUNC gained 22% in the past 24 hours, and doubled its price in a week, according to data by crypto intelligence platform Messari. Still, the token is changing hands at a fraction of a cent ($0.00052 to be precise) and it is down more than 99.99% since the start of the year.
  • A “tax burn” regime that aims to reduce the token’s hyperinflated supply is likely fueling the rally.
  • The community approved a proposal that introduces a 1.2% tax rate on every transaction on the blockchain. According to the proposal, the “tax” will automatically be sent to a wallet to destroy (burn) the tokens to bring down gradually LUNC’s bloated circulating supply. The fee rate is expected to take effect on Sept. 20, according to a statement from Binance, the world’s largest crypto exchange by volume.
  • The rate cannot be enforced on trading the token on centralized exchanges, as a member of the Terra governance forum pointed out, but some exchanges such as MEXC will voluntarily adopt the fee.


Federal Reserve to Act ‘Forthrightly, Strongly’ Until Inflation ‘Job Is Done,’ Powell Says

  • U.S. Federal Reserve Chairman Jerome Powell made his urgent message strong and clear about the central bank’s mission to quickly bring down inflation.
  • “It is very much our view, and my view, that we need to act now, forthrightly, strongly, as we have been doing,” Powell said during a question and answer session at the Washington, D.C.-based Cato Institute.
  • His remarks were made Thursday, the same day the European Central Bank (ECB) hiked its benchmark interest rate by 75 basis points – the largest such move in its history.
  • Amid all the news, bitcoin (BTC) remains near multi-year lows, currently trading at $19,200.
  • In the U.S. “the clock is ticking” on inflation, forcing the Fed to act quickly, Powell said. The Federal Open Market Committee (FOMC), the Fed’s rate-setting body, next meets Sept. 20-21 and – following a string of hawkish remarks over the past couple of weeks – is widely expected to lift its benchmark Fed funds rate by another 75 basis points.
  • “The longer inflation remains well above target, the greater the risk the public does begin to see higher inflation as the norm,” Powell said.

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