Oh, to live in interesting times
Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
Market participants were again on edge this week as attention turned to the Federal Open Market Committee (FOMC) meeting late on Wednesday. The committee, responsible for directing the US Federal Reserve’s monetary policy, hiked American interest rates for the first time since 2018 in a move to curb the impact of rampant inflation in the country.
Unpacking Interest
Interest rate hikes are an important strategy employed by policymakers to combat the debasement of a region’s currency by increasing the premium on borrowing fiat. Such moves are typically observed in markets where excessive supply of fiat and overspending has caused the cost of living to grow dramatically, as is currently the case in the US, which just a week ago posted inflation figures of 7.9%.
Rate hikes are typically denominated in basis points (bps). A single basis point can be represented as 0.01%. In the lead up to the latest FOMC meeting, forecasters predicted a rate hike of 25bps (0.25%) - a “hawkish”, or aggressive, move from the Fed given that the last hike implemented was over 3 years ago. When figures were released on Wednesday, the FOMC rate hike did indeed come in at 25bps, with several more hikes possibly taking place over the course of 2022. Despite this signalling an increasingly bearish macro environment, the fact that the figure has already been priced into markets rendered it largely a non-event, even driving a crypto-wide pump that once again sees BTC rallying beyond $40k, toward the upper limits of the trading range observed throughout Q1.
As Crypto Twitter (CT) veteran @lightcrypto concisely explains:
Back to the tech
As interesting as the dynamics of monetary policy can be, builders have also injected a fresh fervour into crypto this week. The industry has been abuzz with excitement as the final pieces of Ethereum’s long-awaited transition to Proof-of-Stake (PoS) in the form of ETH 2.0 seem to finally be falling into place.
Early this week, Ethereum merged to the Beacon chain on the Kiln testnet - set to be the final public testnet before the wholesale transition to PoS via the Paris merge, slated for later this year.
Save for a few minor bugs, the merge on Kiln was largely successful, igniting a rally that has seen ETH gain in excess of 12% this week to command a price of $2,8k at the time of writing. Notably, the rally has seen ETH gain ground against BTC, surging 5% to the upper bounds of the downtrend observed since early December.
ETH:BTC, TradingView
Forward focus
While the dates of the mainnet merge remain unclear, it’s promising to note that the fabled merge finally seems close to completion. The ramifications of the merge cannot be understated - the transition to PoS consensus will dramatically reduce the network’s much maligned energy expenditure, while also allowing for increased scaling via sharding, resulting in much faster, and hopefully cheaper, transacting on the Ethereum network.
Despite increasingly worrying policy from the Fed, the latest merge’s success is a welcome reminder that no matter the speculative environment, crypto is still moving forward in monumental strides, slowly addressing the barriers to entry that have rendered sectors of the space largely inaccessible to retail entrants.
Price action may, at times, fool us into thinking that crypto may be receding in a fundamental sense, when in reality the opposite is true. Development continues to accelerate at a breakneck pace. It’s even more exciting to consider that this technology is barely entering its teenage years - in a broader sense, still in its infancy. It’s hard to fathom what the space will look like in a year from now, let alone ten, but one thing seems certain - blockchain technology will continue to disrupt industries across the board for years to come, in ways which we can scarcely comprehend. Here’s to the builders.