Can BTC surive the Fed? CPI data cripples crypto rally - Weekly360

Total mcap: $1.027 tn (+2.9%) | BTC dom: 37.76% | Crypto FGI: 34

Last week turned out to be a rollercoaster for digital asset holders, with Bitcoin’s (BTC) price up 20% as high as $22,680 after five consecutive days of gains between Sept. 8 and Sept. 12. The rally caught some traders off-guard as a few market participants anticipated a return of the risk-asset appetite in such a volatile environment.

However, the comeback was short-lived as the double-digit price increase that sent BTC to new monthly highs was followed by a stomach-churning drop at the release of the U.S. August inflation report.

The inflation numbers came above analysts’ expectations, crashing the crypto market, with Bitcoin plunging $2,300, or 10%, on the news during the post-release trading hours.

Meanwhile, the stock market saw its worst day of 2022, with Dow (-3.92%), S&P 500 (-4.32%), and Nasdaq Composite (-5.16%) all tumbling on the hot inflation report.

While today’s U.S. CPI release was expected to show inflation moderating with the month-over-month consumer price change estimated at -0.1%, it revealed another uptick in the inflation rate. Posting a 0.1% increase since July (8.3% from a year earlier vs 8.1% expected), the inflation print is likely to keep the Fed on track for another big rate hike this month.

With the new data on hand, the narrative that the peak inflation was June and inflation would cool down turned irrelevant. Following today’s report, investor consensus sees an 81% chance of a 75 basis point rate hike at the Fed’s September meeting and a 19% chance of a 100 basis point hike, dashing hopes of more dovish Fed moves, as suggested by the Fed funds futures data.

Given today’s big drop in risk-on asset prices, the market has already priced in a 0.75% increase. So another sharp fall next week is less expected unless the Fed goes for a 100 bp rate hike. This seems an unlikely scenario now, but the market just showed us that forecasts may be wrong sometimes.

The Merge countdown

The Ethereum merge is finally upon us, but what’s next?

Around September 15, Ethereum (ETH) will transition to the Proof-of-Stake (PoS) consensus mechanism. The network upgrade is expected to bring down the network’s energy consumption by more than 99.9%.

However, as we put it in the previous issue of Coin360 Weekly, “a set of events happening almost simultaneously - including the inflation report release - has the potential to reduce the positive effect of Ethereum’s transition from PoW consensus to PoS.” This is exactly what we saw today when ether tumbled from trading at \(1,700 to \)1,600 during the U.S. morning hours. However, Ether has the potential to strike back ahead of the merge.

Overall, the merge will not change much for builders and users on the network. The merge wouldn’t increase the network’s TPS by 100,000 or bring the transaction fees down 99% overnight. The transition to a full-fledged and efficient PoS Ethereum network is a long process with multiple stages post-merge, including the introduction of sharding.

The Surge, which is expected to split the Ethereum chain into 64 shard chains; the Verge, which should improve the network’s scalability with node optimization; the Purge aims to improve data storage; the Splurge for “all of the other fun stuff” are other milestones on Ethereum’s evolution path. Therefore, Ethereum’s future dominance in the web3 space is not a question of the merge itself.

PoW wow

Ethereum’s transition away from the Proof-of-Work consensus mechanism obviously means the end of the era for Ether miners. Since mining Ethereum will no longer be an option in just two days from now, proof-of-work miners have to seek alternatives.

The noticeable price action seen among the PoW coins in recent weeks suggests there are a few destinations for miners to put their mining hardware to work, with the most popular option being Ethereum Classic (ETC).

ETC has been among the best-performing coins for several weeks now, with ETC up more than 20% over the last 20 days and 185% since mid-July, according to Coin360 data. Since July 18, According to Coin360 data, Ethereum Classic has been consistently outperforming Ethereum since mid-July, causing the price of ETC to double in relation to ETH.

Mining Ravencoin (RVN), a fork of the Bitcoin network focused on the issuance of digital assets is another choice for Ethereum miners who want to keep working after the merge. Data from Coin360 shows that in the final days leading up to the Ethereum merger, Ravencoin’s value nearly doubled. Another contributor to RVN’s price surge was the listing of Ravencoin perpetual futures on FTX exchange.

A go-to destination for another group of miners would be the ETHPoW chain, which is expected to launch within 24 hours after the Ethereum Merge on September 15. The network is rumored to airdrop its ETHW tokens to ETH holders at launch. The forked version of ETHW has already been listed on a number of exchanges, including Poloniex, Bitfinex, and Coinbase.

Some more exotic options include the Ergo (ERGO) blockchain, recommended by Cardano’s (ADA) founder Charles Hoskinson. The network’s ERGO token advanced 62% from \(3.2 on Sept. 1 to a local high of \)5.2 on Sept. 6 before retracing back to the levels around $4 where it is trading at the time of writing.

Overall, it seems that the rally in the PoW tokens may be close to its peak. With token prices lifted by three-digit numbers, timing your trades to gain profit becomes a rather complicated task.

LUNC: to the moon and back (again)

Rising on the news of a governance proposal to impose a flat 1.2% fee on all on-chain transactions in the Terra Classic network, LUNC experienced a parabolic rise at the start of September. The proposal received support from large crypto exchanges such as Huobi Global, KuCoin and MEXC, among others.

First, some traders got excited about the potential deflation in the network that would bring down the supply of LUNC, creating the first wave of buying power for the coin and pushing its price higher. Then, the traders who noticed the unusual price action jumped in, further spurring the LUNC buying spree.

The native coin of the rising-from-the-dead network skyrocketed by 500% from the \(.00009 levels, where it waffled since early August to a local peak of \)0.00586 seen on Sept. 8. Renewed trader interest in the coin with billions of LUNC trading volume on centralized exchanges, propelled Terra Classic’s market capitalization above the $3 billion threshold last week, according to Coin360 data.

Terra’s UST Classic (USTC) stablecoin and Mirror (MIR), the token of a synthetic asset trading built on Terra Classic, followed a similar pattern to LUNC, adding 18% and 65% over the last seven days, respectively.

The hype vanished quickly though, and the LUNC rally ended abruptly. The price of the coin already dropped nearly 35% from the local high. However, the actual introduction of the 1.2% fee, scheduled on Sept. 20, may become an ultimate ‘sell-the-news’ event for Terra Classic’s coin.

In essence, Terra Classic is still a dead network with no real developer activity, and thus no sustainable future and interest from the crypto community to support the large trading volumes and supply burning. Any LUNC purchases for the long term, especially at the current prices, come as a highly risky moves.

Once the daily burn stabilizes, it is much more likely to skew to the more conservative scenario and will most likely not be enough to offset the $162,000 in daily circulating token inflation once LUNC trading volume is back to its normal levels.

A surprising line-up

Apart from the aforementioned cryptos, digital assets broadly moved higher last week, but the largest gains are seen on the speculative side of the crypto market.

VGX: The token associated with the bankrupt crypto lender Voyager sits in profit again this week as it only gave back a small part of gains after its spike between Sept. 6 and 7 following the company’s decision to auction its assets for qualified investors on Sept. 13. The results of the auction are expected on Sept. 29. As we mentioned last week, the auction itself, or the results announcement may become a ‘sell-the-news’ event for VGX.

GLM: The token of a decentralized cloud computing network Golem — one of the projects particularly popular during the 2017 ICO era — jumped 48% over last week on the minor news of the project’s developer hiring campaign, which for some probably meant the Golem network is not abandoned and still has a chance to catch up.

SNM: SONM is another opaque token in today’s list of the best-performing cryptos with market capitalization above $150 million. Another token from the long past ICO boom, and another decentralized cloud computer solution saw a 51% pump in price. Unlike the Golem network, Sonm can be considered a nearly dead project with no real product behind it and its SNM native coin only existing as a subject for speculation.

The pre-merge test

A multitude of the core Ethereum DeFi ecosystem projects saw the prices of their tokens slipping ahead of the merge. Balancer (BAL), 1inch (1INCH), Lido DAO (LDO), Aave (AAVE), and Uniswap (UNI) are among the tokens in the red this week, as all the prices falling in line with ether following today’s U.S. CPI inflation report.

NEXO: The token of a lending platform NEXO is closing its second week in the red with an 11% loss despite the company’s recent business development advancements. In late August, NEXO revealed a $50 million allocation to its token buyback initiative. The crypto lender also introduced its platform for spot, futures, and margin trading last week, but the news wasn’t enough to create momentum for the NEXO token.

AXS: The governance token of a blockchain-based game Axie Infinity’s AXS fell on the week of the company’s annual conference in Barcelona and the rebranding of the marketplace, closing its second consecutive week in the red.

Earlier this year, Axie Infinity saw its in-game economy shrinking amid high inflation in the supply of its utility token SLP. Axie Infinity has since tried to revamp its play-to-earn gaming economy and entice players back with the new features.

CPI ruins the party

BTC and the crypto market have rebounded significantly off the recent \(18,000 low, making a great rally to almost \)23,000 and liquidating late shorts at the support. The highly anticipated ETH merge also fueled the rally, with ETH futures open interest rising from \(8 to \)9 billion in 1 week. BTC futures open interest denominated in BTC reached an all-time high of 310,000+ BTC.

The CPI report today has driven down S&P, BTC, and the whole crypto market, wiping out gains made during the past four days. At the time of writing, BTC is trying to hold crucial local support of \(20,600. If BTC fails to reclaim \)21,000, then we might see a large number of long liquidations in the market as total crypto futures open interest went above $30 billion for the first time since May.

For more crypto updates and daily news, follow Coin360 on Twitter.

Disclaimer: None of the information here constitutes financial advice and market participants are advised to conduct their own research since cryptocurrencies are speculative assets with considerable risks.