Crypto Market Forecast: Week of July 25th 2022

Bitcoin’s (BTC) price recovered this week by almost 4% and is currently trading for just under US$24K. Ether (ETH) and Binance-coin (BNB), the second and third largest (non-stablecoin) assets by market cap, experienced ~6% and ~10% recoveries this week, and sit at ~US$1.7K and ~US$291 respectively.

Federal Reserve Chair Jerome Powell spoke at the FOMC press conference this past Wednesday and announced a ¾ percentage point increase — with the Effective Federal Funds Rate hiked from 1.58 to (now) 2.33%. The rise is part of an ongoing attempt to bring inflation under control. (The Fed’s stated inflation target is still 2%; June’s official CPI was 9.1%).

Interestingly, Bitcoin’s price spiked (upward) following the announcement (from ~US$21.2K to as high as ~US$24.6K). This implies that, to the extent that the rate hike may have applied downward pressure, the market took the expectation of interest rate hikes into consideration before the announcement and that (as is often the case) there were simultaneously even stronger upward pressures from elsewhere.

Ethereum founder Vitalik Buterin spoke at the recent EthCC Paris conference, detailing what to expect from upcoming changes to the blockchain post-“Merge” (the proof-of-work to proof-of-stake transition).

But noteworthy to Ethereum’s (ETH’s) price over the long-term is a change to the monetary policy which will modify the issuance (creation of new coins) from ~13,000 ETH/day pre-merge (by mining) and ~1,600 ETH/day pre-merge (by staking) to just ~1,600 ETH/day. In addition, there is a “burning” phenomenon that happens when ETH is removed from circulation. The Ethereum website states that “[at] an average gas price of at least 16 gwei, at least 1,600 ETH is burned every day, which effectively brings net ETH inflation to zero or less post-merge”.

If fewer ETH are issued per day, if we are to hold the demand constant, expect upward price pressure. It must also be noted that there is a possibility that the Ethereum development team will change the monetary policy yet again because of public backlash and governance considerations.

The US Securities and Exchange Commission (SEC) has begun probing Coinbase** (COIN) for allegedly listing nine (9) unregistered securities on its platform. Coinbase fired back with a “Petition for Rulemaking” and a blog post accusing the SEC of operating under “arbitrary enforcement” and “guidance developed behind closed doors” instead of “formal procedures and a public notice-and-comment process”.

SEC Chair Gary Gensler has reiterated his belief that “many tokens” are securities. The SEC’s recent rule-by-enforcement with Coinbase may be the regulatory agency’s attempt to set the terms of discussion as the Lummis-Gillibrand bipartisan “crypto bill” (Responsible Financial Innovation Act) circulates around Washington for commentary.

Crypto news for the weeks ahead

25 July
The Avalanche blockchain will be airdropping a FLUX-AVAX “parallel asset” to wallets that held FLUX on May 5th.

27 July
The U.S. Federal Reserve will meet to decide on its next interest rates increase. Economists predict at least another 75 basis point rate hike.

28 July
The Hedera project announced that it will be resetting its testnet on a quarterly basis beginning July 28th.

End-of-month in July
The smart contract platform Cardano (ADA) has delayed the “Vasil hard fork” of its blockchain. The upgrade will increase the block size limit (allowing for more transactions per block) and hopes to achieve lower transaction fees.

Top 10 Crypto Summary

Some signs of recovery this week across all top-ten digital assets by market cap. Ether (ETH) had a particularly bullish week — up over 19% versus the previous week following an announcement of the Ethereum blockchain “Merge” from proof-of-work (PoW) to proof-of-stake (PoS) projected timeline of the week of September 19th. Cardano’s (ADA) price jump precedes its blockchain’s “Vasil hard fork”, deadlined for the end of July.

Bitcoin Price Chart

Has Bitcoin reached its price floor during this present “winter”? There are a few reasons to think that it may have already. Looking at sums of realized losses, since the Terra/LUNA debacle from early May, we realized US$27B in a 30-day period and then US$35B thereafter. Together, these are the largest realized losses in Bitcoin’s history. Glassnode on-chain analytics concludes from this that the vast majority of would-be sellers have capitulated already. Additionally, roughly 80% of Bitcoin’s supply is older than 3 months. This points to a HODLer “conviction” of BTC’s long-term value — especially, as we’ve seen from previous weeks, these long-term HODLers are buying up coins from more price-sensitive short-term sellers.