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The Hash Insider: Sinking deeper in the Jackson Hole

The Hash Insider

The NCI closed Sunday (8/28/22) 7.3% below last week’s closing. The index’s performance was influenced by ether (ETH), down 8.4%, while bitcoin (BTC) fell 6.9%. 

Crypto markets started the week on a slight downtrend in the wake of last week’s double digit losses. BTC and ETH briefly dipped towards the $21,000 and $1,550, respectively, as investors set their sights squarely on the Fed’s Economic Policy Symposium in Jackson Hole, Wyoming, to be held later in the week. 

The growing macro pessimism in the early week was registered by the CME FedWatch tool, as the number of survey participants who predicted a 75 bp rate hike slowly overtook those who predicted a 50 bp rate hike. By Monday night, the hawkish predictions took the lead with around 55% of participants expecting a 75 bp hike. 

During Tuesday, digital asset prices registered a slight recovery, in part due to data that showed that home sales in the US dropped by 12.6% in July on a yearly basis. 

The resilience of the overheated US housing market has been one of the metrics closely watched by investors. This data helps gauge how much room exists for Fed monetary intervention before the US economy is thrust into a prolonged recession. 

On Wednesday, BTC and ETH registered a modest recovery alongside traditional markets. ETH outperformed, gaining nearly $100 on its way to breaking past the $1,700 mark in early hours of Thursday. 

For the remainder of Thursday, digital asset prices remained mostly stable as investors anxiously awaited Friday's economic symposium.

On Friday, digital asset prices started off strong, only to plunge hand-in-hand with equity markets after Fed chairman Jerome Powell spoke about the inevitable “pain” ahead as the Fed continues its fight against inflation. 

ETH prices dropped by nearly 11%, well below the $1,500 mark in the hours immediately following Powell’s speech. BTC showed greater resilience in the face of Powell’s foreboding words, but still suffered a nearly $1,500 drop.

Before the start of the new week, digital asset prices would slip further down still. Both BTC and ETH established new weekly lows just before Sunday gave way to Monday, sinking past $20,000 and $1,450, respectively. 


More from Jackson Hole


Digital asset prices were once again primarily driven by speculation surrounding the Fed’s monetary policy outlook. Jerome Powell issued what could only be interpreted as a stern warning by market participants last Friday.

Managing inflation expectations by assuring the public that the Fed is willing to stomach the negative consequences of its bitter monetary prescription was the central theme of Powell’s keynote speech. 

According to Powell, the FOMC’s sole focus right now is reestablishing price stability, and it’s not only willing, but expecting to cause “some pain” to achieve it.

Powell dismissed the positive inflation readings for July that caused markets to rally as falling “far short of what the Committee will need to see before we are confident that inflation is moving down.” 

While the Fed Chair did once again mention it would eventually be appropriate to slow down the current rate hiking cycle, he warned investors that Fed Funds rate will likely remain in restrictive territory “for some time” to guarantee its desired effect.


Other News 


The Ethereum Foundation divulged on Wednesday (08/24) that it expects the blochain’s transition to proof-of-stake to be completed between September 10 and 20. According to the disclosure, the Bellatix upgrade, responsible for putting the merge into action, will begin on September 6. 

Bank of America published a note last Friday (08/26) predicting that ETH prices will lose momentum until the merge, as investors come to realize that the smart contract’s transition to a proof-of-stake consensus mechanism “will not address scalability concerns or high transaction fees.”

Morgan Stanely published a report last Monday (08/22) highlighting the fact that the collective market cap of stablecoins stopped diminishing for the first time since April on a monthly basis. The research report interpreted this stability as a sign that crypto liquidity has stopped falling and the “extreme institutional deleveraging” in the crypto market has paused.


Looking ahead 


Investors will spend the week reacting to US job figures, highlighted by Friday’s release of nonfarm payrolls. The week will also be marked by speeches delivered by the New York, Cleveland and Atlanta Fed presidents. Both could provide clues that are likely to shape investor’s expectation for the upcoming FOMC meeting on September 20-21.


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