Crypto Market Forecast: Midweek Update 11th August

• Prices across digital assets have jumped this week on the back of better than expected macroeconomic data from the USA. The Bitcoin price is up ~2.87% and the Ethereum price is up ~8.75% this week.

• The prices of BTC and ETH jumped on Wednesday almost immediately after the release of new CPI data from the US. The CPI is a measure of inflation based on the price of a weighted basket of goods and services purchased by American households.

• New data revealed that in July, the CPI hit 8.5% (a year-on-year increase in the price of the basket). This number was less than the predicted 8.7% and an improvement from June’s 9.1%. The June number was a 40-year high for CPI inflation.

• Parallel to the surge in crypto markets, US stock indices closed at their highest levels since early May following the CPI print. Immediately after the print, the Fed funds futures rates indicated a sizeable shift in traders predicting a 0.5% interest rate rise, instead of a 0.75% rise, at the next US monetary policy meeting.

• Other factors that drove the value jump across risk markets are lower energy prices. Gasoline prices have dipped for 57 straight days in the United States. Market participants appear buoyant because monetary policy and energy prices appear as though they will be less constrictive in the medium term.

• The correlation between the BTC price and the S&P500 currently sits at 0.85, while with the Nasdaq Composite it sits at 0.84. The close correlation between crypto and traditional markets suggests that both have been similarly effected by macro factors and Fed policy decisions in recent times.

Altcoin Watch

• Alongside Ethereum, a number of altcoins also had strong weeks. Assets including Aave (AAVE), Near (NEAR), and Synthetix (SNX) also performed well following the CPI print.

• The third and final testnet before the much-hyped Ethereum Merge update is set to occur on the Goerli testnet within the next 24 hours. The two prior testnets, Ropsten and Sepolia, were able to successfully implement a switch from Proof of Work to Proof of Stake.

• Market observers suggest that if the Merge successfully occurs on the Goerli testnet, the merge will be on course to occur in mid-September.

• Major exchange Binance is gearing up for the Merge already. The exchange says it will support the switch and is closely following development progress towards it. Binance has said that it may also support any forked tokens that may be created as part of the Merge.

What we’re looking at: US Treasury blacklists Tornado Cash

The US Treasury announced this week that it is blacklisting digital asset mixing service Tornado Cash because it says the protocol “has been used to launder more than $7 billion worth of virtual currency since its creation in 2019." The decision prohibits any person in the United States from using Tornado Cash "unless authorized by a general or specific license issued by OFAC [Office of Foreign Assets Control]", the Treasury said.

The announcement was met with disappointment in the United States because the blacklist affects every person in the country, not just those using Tornado Cash for money laundering or criminal activity. US cryptocurrency lobby group Coin Center explained that the sanction is strange because Tornado Cash is a series of smart contracts, not a person or group of people.

The Treasury actions appear "to be the sanctioning of a tool that is neutral in character and that can be put to good or bad uses like any other technology," Coin Centre said.

Additionally, Tornado’s open source code was removed from the Github platform following the sanctions. Github is owned by major American corporation Microsoft. Despite the Github code removal, the Tornado Cash smart contracts are still live and operational on Ethereum for the blockchain community to use.

An anonymous troll has been sending Ethereum from a Tornado Cash wallet to major American celebrities that have publicly known Ethereum addresses. The user has presumably been doing this to indicate how difficult it is to control an open-source, permissionless, immutable platform like Tornado Cash.