Riding The Wave News Summary #67
Bitcoin likely to transition to a risk-off asset in H2 2022, says Bloomberg analyst, Derivatives Suggest a ‘Sell-the-News’ End to the Ethereum Rally, & more
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Bitcoin is likely to transition from a risk-on to a risk-off asset in the second half of 2022, as the macroeconomic environment is rapidly shifting towards a recession, said Mike McGlone, senior commodity strategist at Bloomberg, in a recent interview with Cointelegraph. McGlone predicted:
“ I see it transitioning to be more of a risk-off asset like bonds and gold, then less of a risk-on asset like the stock market.”
According to the analyst, the crypto market has flushed out most of the speculative excesses that marked 2021 and it is now ripe for a fresh rally. McGlone also pointed out that the Fed's aggressive hiking of interest rates will lead the global economy to a deflationary recession, which will ultimately favor Bitcoin
I still think it’s early for Crypto to pull itself out of this bear market and start rallying, especially as we have followed the broader economic situation in dropping across any and all of the previous major events we have seen. I’m expecting us to see more small rallies, drops, & overall sideways movement for now.
Ether is surging in anticipation of a groundbreaking software upgrade to its blockchain. Sophisticated traders are positioning for the rally to continue until that happens -- and then for the cryptocurrency to plummet afterward.
Speculators in derivatives markets are scooping up call options to bet on an Ether advance into September, when the upgrade is supposed to happen. Yet futures and options are suggesting they’re expecting the price to drop after the event in what analysts at Glassnode say could be a “sell-the-news”-type of situation.
September call options “dwarf” put options, with traders waging Ether’s price could rise to around $2,200 from its current $1,800 level, according to Deribit data compiled by Glassnode.
Ethereum’s upgrade has been long-awaited and news around it has been welcomed by investors, who have over the past month pushed its token’s price up by roughly 80%.
But though there’s a lot of excitement around the Merge, not everyone’s convinced it will go without a hitch. It’s “very dangerous” not to consider the outcome the update doesn’t go smoothly, according to Kevin Zhou at Galois Capital, a crypto hedge fund.
Zhou says he envisions that after the Merge, the old, so-called proof-of-work chain supported by powerful computers called miners will continue to exist in a slightly modified form and split, with POS making up about 95% of value and POW grabbing the remaining roughly 5%.
Though Ethereum adoption has increased, fees -- which are fundamental to forecasting the staking yield and inflation rates -- need to, based on previous cycles, reverse course for a new bull cycle to commence, according to Jamie Douglas Coutts at Bloomberg Intelligence. Macro inputs like liquidity and yields have become the primary determinants of cycle bottoms, as happened in 2018, he said in a note.
“The second the Merge happens there will be front-running bots that will instantly find every block of POW to empty liquidity pools of Uniswap and others on EthereumPOW,” he said. “The goal is to sell as many tokens as they can -- to get as many EthPOW -- the only asset on EthereumPOW chain that may have some kind of value.”
I also expect a “buy the rumor sell the news“ situation to play out. I dont expect the POW ETH chain to work out unless there ends up being some insanely horrible issue with the POS chain, which is unlikely.
Despite the ongoing cypto bear market, many top cryptocurrencies posted double-digit percentage gains over the week.
Bitcoin had no such luck. Bitcoin only rose 5.5% over the last seven days and currently trades for $24,460 according to CoinMarketCap.
Several so-called “Ethereum killers," aka layer-1 blockchains with high-functionality smart contracts, posted large rallies: Avalanche (AVAX) blew up a staggering 55% over the week, until it gave up a lot of its gains on Friday night as ETH was rising. Much of the momentum was thanks to the hefty growth of NFTs on the blockchain. By Saturday morning, AVAX was up just 15% in the past 7 days and trading at $29.53.
The chill of crypto winter showed little sign of abating this week.
On Monday, Singaporean exchange Hodlnaut joined fellow lenders Vauld and Celsius and Singaporean exchange Zipmex on the list of crypto companies that have suspended customer withdrawals due to “recent market conditions.”
Most of these rallies are due to Eth seeing an uptick due to the merge & the rest are due to an altcoin season happening when Bitcoin moves sideways.
The blockchain industry showed some surprising resilience in July, which may point to a period of greater fundamental support for the crypto space overall in the short term. In looking at a wide variety of indicators, including Bitcoin’s (BTC) price action, open interest on Ether (ETH) and activity in GameFi, there are some strong signals to suggest that a bullish sentiment is returning to this space.
Bitcoin closed July up 16.6% since the start of the month, a gain not seen since October 2021. BTC continues to range with a level of resistance around $24,000; however, the repeated approach and rejection are likely to break at some point if factors change, such as positive economic growth reports from the United States and elsewhere.
The GameFi sector has been on a decline since the large market crash in the first half of 2022. However, July saw a 4.7% jump in new users across all of GameFi compared to June. Some highlights from this sector include the sale of digital real estate and the sale of a Genesis Land plot, which went for 550 Wrapped Ether (wETH). Nonfungible tokens (NFTs) that were part of the GameFi sector made up more than 36% of the $976 million of total NFTs value sold in July.
I think we may see a break from the chaos this summer. However, with inflation still extremely high, more CPI reports looming, & this unique recession (some indicators like growth pointing to one but others like jobs not), I dont think we are out of the woods for the economy as a whole, which means crypto isn’t safe yet either.
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