The NCI closed Sunday 4.5% above last week’s closing. The index’s performance was heavily influenced by Ethereum, up 14.7%, while Bitcoin rose 0.8%.

The crypto market started the week in a slump, as bitcoin continued the downward trend that took hold during the previous weekend. On Wednesday before markets opened, another disappointing Consumer Price Index (CPI)  reading  showed inflation continued to accelerate in June, now registering a 40-year high of 9.1%. 

The higher-than-expected uptick in inflation caused bitcoin’s price to drop by nearly $1,000 immediately after CPI results were divulged, as investors priced in a greater possibility of an 100 bp interest hike when the Federal Open Market Committee (FOMC) meets in late July. 

The remainder of the week was positive for crypto markets, with bitcoin recovering all its early-week losses and going into green before closing out the week on Sunday on strong upward momentum. 

Early signs the token’s price may have bottomed out and entered the accumulation phase, as measured by profitability of newly minted coins, is continuing to drive demand anytime bitcoin’s price dips too far past the $20,000 mark.

While bitcoin’s resilience in the face of unrelenting inflation figures is certainly a positive development, Ethereum’s price surge was the actual highlight of the week. Optimism surrounding Ethereum’s impending update, called “The Merge'', seems to have superseded current macro woes, resulting in the strongest ETH rally since March. 

Ethereum’s merge will shift its blockchain from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) model, which will drastically decrease its energy consumption, among other improvements (read our research team’s full breakdown of The Merge here)

The primary catalyst for ETH’s lateweek rally seems to have been a tweet published by Ethereum Foundation member Tim Beiko. In the post, Beiko outlined a series of events and respective dates leading up to a mainnet merge on September 19th. The added clarity brought by the Thursday tweet sustained a rally throughout the remainder of the week, raising ETH’s price from around $1,100 to nearly $1,400 by late Sunday.

After a series of postponements throughout 2021 and 2022, Ethereum developers have managed to string together an impressive streak of achievements since early June – including the merger of two testnets – that have brought a PoS future to the forefront of investor’s minds. 

The next major date on the merge schedule is August 11, when the Goerli testnet is due to be merged. If all goes according to plan until the 11th, the actual merge of the Ethereum mainnet will be next on the docket.  

The growing optimism surrounding the merge has also narrowed the price difference between ETH and one of its staked derivatives, stETH. This derivative, created by Lido Finance, represents an ETH token that has been staked (deposited) on the beacon chain and can be used to redeem actual ETH at a future date, to be determined by the actualization of the mainet merge. 

As of the writing of this report, stETH’s is being traded at 0.977 ETH. Midway through June, stETH was being negotiated below  0.94 ETH. The greater parity between ETH and its staked derivative is not only a clear sign of growing optimism surrounding the merge, but could also alleviate some of the pressure on institutional investors with stETH-heavy portfolios.

The Celsius Network, a CeFi (centralized finance) platform at the center of the ongoing credit crunch, is one of the many entities in the crypto space with an overexposure to stETH. The troubled lender filed for bankruptcy last Wednesday, divulging a $1.2 billion hole (liabilities - assets) in its balance sheet via a court filing. 

Despite the chapter 11 filing, the lender’s future remains unclear. It is currently successfully paying off a sequence of overcollateralized loans from DeFi (decentralized finance) protocols (Aave, Compound and Maker) and unlocking access to tokens, successfully creating enough breathing room to continue to restructure its debt. One such payment, made by Celsisus to the DeFi protocol Aave, unlocked $418 million in stETH tokens earlier in the week.   

While the access to this collateral and stETH’s greater parity to its underlying asset won’t be enough to generate a significant push that thrusts Celsius towards solvency, reduced fears of a possible stETH depegging and Celsius’ debt restructuring progress are both positive signs that could help alleviate liquidity-contagion fears currently stifling crypto asset prices.     

   

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