The eye of the storm
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.
Like Sisyphus and his rock, we once again find ourselves range-bound as BTC’s challenge on $25k saw firm rejection, with the leading crypto now sitting under $23k. Similarly, Ethereum’s merge-fuelled run has encountered staunch HTF resistance at the $2k mark, and currently sits in no man’s land just above $1,8k.
Let’s dig in.
Another round on the Fed’s carousel
The perplexing optimism of a flat month-on-month (MoM) CPI seems to have all but evaporated in the face of FOMC minutes published on Wednesday. With the latest announcement, the Fed has made it clear that 50-75bps hikes remain on the table as markets continue to run hot and data suggests July’s job and wage growth exceeded expectations. Core US Sales, a vital metric for monitoring consumer spending, has also come in above expectations in July – a clear signal to the Fed that spending has not yet substantially been reigned in by any means. These considerations, coupled with the UK recording 10% inflation, once again support the understanding that, just like inflation, Quantitative Tightening (QT) is anything but transitory. Those hoping for a pivot any time soon should not be holding their breath.
Merge fever tempered
While Ethereum’s recent surge has been primarily driven by growing excitement surrounding the Merge, it’s becoming increasingly clear that many participants have little idea of the actual impact the transition to PoS will yield. While the Merge will reduce ETH issuance dramatically and reduce the chain’s energy expenditure by an astounding ~99.95%, the transition to PoS, in and of itself, will not serve to reduce gas fees or necessarily increase transaction speeds. For that we’ll have to wait another year, as the Ethereum Foundation has slated the deployment of Sharding for 2023.
Another cause for concern regarding post-Merge price action comes in the form of CME Options for ETH being launched on 12 September – a mere three days before the Merge is set to go live. Historically, CME launches haven’t bode well for the market. Some may recall that CME’s launch of Bitcoin futures on 17 December, 2017, signalled the end of BTC’s first mainstream bull run. One must keep in mind that CME is the largest financial derivatives exchange on the planet, and the addition of fresh crypto-focused instruments provides a large subset of cross-sector, derivatives’ traders with the opportunity to long, but more importantly in this context, short these assets.
Forward focus
Presently, equities and crypto find themselves grazing the upper bounds of long-term resistances after a heated bear market rally. Whether the move extends from here or not, it’s vital to take stock of positions and any gains earned during the latest upswing. The pervading air of uncertainty lingers as markets remain significantly disconnected from the struggles being faced by ordinary people in the current economic climate. The Fed doubling down on its adherence to data-driven policy enactment and explicitly stating that markets remain heated is further reason for caution in the coming weeks or months.
That being said, as we now know better than ever before, those who control liquidity control the charts. As long as liquidity remains thin and ordinary retail struggles to make ends meet (let alone dive risk-on into digital assets), it’s likely that significant, and confusing, volatility continues to define price action.
Zoom out and tread lightly – the range that seems to have spanned an eternity is merely a blip on BTC’s trajectory – and there’s certainly no rush to enter without confidence.
