Crypto Market Forecast: Midweek Update 30th June 2022

• The digital asset markets pulled back again this week with markets showing heightened sensitivity to news events and nervousness among investors. Bitcoin (BTC), and Ethereum (ETH), are down ~4.77% and 7.98% respectively.

• A trigger for the price fall was news that the British Virgin Islands ordered the liquidation of Three Arrows Capital (3AC) after creditors sued the cryptocurrency hedge fund for failure to repay debts.

• 3AC is a mega fund within the crypto space, it was founded by Su Zhu and Kyle Davies in 2012 and at one point oversaw a reported US$10 billion in Assets Under Management. During the recent crypto downturn, it suffered heavy losses and reportedly was caught out by over US$400 million in liquidations.

• Publicly traded crypto brokerage Voyager Digital (VOYG.TO) issued a default notice to 3AC earlier this week after the fund failed to make the required payments on loans of 15,250 bitcoins and $350 million in USDC.

• The reach of 3AC is significant across the crypto ecosystem. Crypto lender BlockFi reported that it has had to liquidate some 3AC positions. The crypto savings platform has reduced its withdrawal limit citing its exposure to 3AC, and derivatives platform Deribit has said 3AC’s debts are now distressed.

• A bleak global macro situation is also affecting the sentiment in crypto markets. Revised Q1 GDP data numbers from the US indicate that the economy declined by 1.6% during the quarter. There are now concerns that the country faces a technical recession.

Altcoin Watch

• The majority of the altcoin market suffered slumps alongside Bitcoin. A few large-cap assets like DOGE and XMR, however, bucked this trend enjoying healthy early week gains.

• Dogecoin has enjoyed a strong week after a new round of support from Elon Musk who explained at the World Economic Forum that it was employees at SpaceX and Tesla that initially turned him onto DOGE.

• “I just had a lot of people who are not that wealthy, who have encouraged me to buy and support Dogecoin,” Musk said on June 21st. “So I’m responding to those people. Just people that work in the factory of SpaceX or Tesla, they’ve asked me to support Dogecoin.”

• DOGE has shown significant bullish alpha in the last fortnight compared to an otherwise tepid and trendless altcoin market. The coin is up ~28% in the last 14 days. Over the same period Ethereum (ETH) is down ~8%.

What we’re looking at: Ethereum readies itself for Gray Glacier hard fork

The Ethereum network is set to undergo a scheduled network upgrade at block 15,050,000. This is expected to occur on Wednesday, June 29, 2022. The Ethereum foundation invited node operators to upgrade before Monday, June 27. Protocols like Nexo and Hodlnaut have announced to users that Ethereum chain withdrawals and deposits will be paused when the upgrade is being deployed.

The Gray Glacier update will change the parameters of the Ice Age/Difficulty bomb — pushing it back by 700,000 blocks or ~100 days. The difficulty bomb is a mechanism built into the network that intentionally slows down the network at a predetermined point. It is designed to encourage the transition from Proof-of-Stake to Proof-of-Work and push developers to work on the switch. The bomb can be delayed but many developers don’t want this option to be taken.

No other upgrades will be introduced as part of Gray Glacier. The difficulty bomb has been delayed in the past as part of the Byzantium, Constantinople, Muir Glacier, London, and Arrow Glacier network upgrades.

The delay of the difficulty bombs indicates that Ethereum’s devs are not yet ready for the merge. The merge is one of the most important Ethereum upgrades to date, and will see the current Ethereum mainnet shift from Proof-of-Work consensus to Proof-of-Stake. The merge has already been delayed more than once and users are beginning to get frustrated. ETH holder grievances are further exasperated by the poor performance of the coin so far this year.