The NCI closed Sunday (09/11/22) 10% above last week’s closing. Positive performance was influenced by ether (ETH), up 12.9%, while bitcoin (BTC) rose 8.8%. 

Following a week of uneventful price action defined by sticky prices, BTC remained just below the $20,000 mark throughout Labor Day (US holiday) while ETH took off, gaining $100 on its way to surpassing the $1,650 mark as Merge enthusiasm grew on the eve of the Bellatrix upgrade. 

ETC, Ethereum Classic’s native token, outperformed most other digital assets as investors may have bet the Ethereum offshoot could benefit from the post-merge influx of miners looking for a new PoW home. 

However, on Tuesday, concerns about Europe’s energy crisis impacted both traditional markets and crypto assets. ETH prices began plummeting midday, nearing the $1,500 mark after a 10% drop by the end of Tuesday. BTC prices also sank around the same time, eventually trading below the $19,000 mark.

In the early hours of Wednesday, crypto asset prices began to recover. While BTC registered modest gains before settling above $19,000, ETH rocketed back toward $1,650. Both cryptocurrencies plateaued as markets closed in North America. 

Prices rose despite the announcement of the largest ECB rate hike (75 bp) since 1999, which investors likely anticipated after the astronomical inflation readings coming out of Europe earlier in the month and the growing tensions between Russia in its energy-dependent markets.

On Thursday, prices remained mostly stable despite more tough words from Fed Chairman Jerome Powell at a Q&A held at the Cato Institute. Crypto asset prices seemed immune to the central banker’s reiteration of his unwavering commitment to the pursuit of price stability. 

A lower-than-expected reading of initial jobless claims from the US, an indicator that investors have used to gauge how much room there is for the Fed’s hawkish monetary intervention, also left the market unfazed.

On Friday, BTC surprised analysts with a puzzling 10% rally, registering its largest daily surge in six months despite no clear driver. ETH prices also rose, although not as drastically. The rally may have been influenced by the dollar index’s (DXY) weak performance, which has shown a strong negative correlation with digital asset prices as of late. 

Regardless, BTC’s leap despite Powell’s hawkish outlook being on full display is a clear sign that investors remain skeptical that the Fed could follow up its tough talk with tough action. Crypto markets seemed to call the Fed’s bluff, betting that waning economic activity will force the Fed to pivot sooner rather than later. 

During the weekend, ETH and BTC prices continued to slowly rise as Merge week drew closer and BTC’s price was sustained by the continuation of Friday’s unexpected optimism.    

 

Other news 

Ethereum’s Bellatrix fork, the final prerequisite for The Merge, was successfully implemented. The upgrade embedded the necessary Merge logic for Beacon Chain validators to monitor the PoW chain and start block production post-Merge.

Bank of America published a report on Friday noting that the switch to a PoS consensus mechanism as result of Ethereum’s Merge may result in great institutional adoption, allowing some institutional investors to purchase ETH for the first time as ESG concerns regarding Ethereum’s power hungry PoW system gives way to the marginal energy consumption of PoS. BAC also noted in its report that the prospect of great post-Merge staking yields could contribute to an influx of institutional investors.  

The White House published a report on Thursday expressing concerns about the impact of PoW mining on climate change. The report cites Ethereum as one of the primary PoW culprits, but did acknowledge its eminent shift to PoS: “There have been growing calls for PoW blockchains to adopt less energy-intensive consensus mechanisms. The most prominent reaction has been Ethereum’s promised launch of  Ethereum 2.0, which uses a PoS consensus.”

 

Looking ahead

Merge week is here and ETH prices are bound to to fluctuate as news of the success or failure of the the shift to PoS trickles out. For a comprehensive analysis on Merge and post-Merge risks for investors, access our research team’s report here. 

On the macro front, CPI figures, to be released on Tuesday as markets open in the US, could further bolster last week's bullish bet on a Fed pivot or prove investors wrong. US jobless claims and retail sales, to be released on Friday, will provide additional information that could temper market expectations for the Fed’s upcoming

 

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