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Week in Review: Is the worst of the crypto winter behind us? JP Morgan and Citibank report positive signs


The NCI closed Sunday 11.4% above last week’s closing. The index’s performance was heavily influenced by ether, up 19.5%, while bitcoin rose 8.3%.

Crypto markets entered the week with strong momentum, still feeding off Ethereum’s “Merge” optimism and the expectation of a less-hawkish Fed after its Wednesday meeting. 

Bitcoin took off in the early hours of Monday en route to register its best performing day in over a month. By Wednesday afternoon, the beleaguered cryptocurrency was up nearly $3,000, breaching the $24,000 mark for the first time since mid June. ETH traced a similar trajectory during the first half of the week, sustaining last week’s meteoric push through a $200 price increase all the way to $1,600.

Citibank published a report on Wednesday citing the Celsius Network’s bankruptcy filing, market makers making counterparty exposure disclosures, and the narrowing price gap between ETH and stETH (staked ETH derivative) as strong signals that crypto’s contagion fears may be waning. 

JP Morgan echoed a similar sentiment in a report published on Thursday. The investment bank  believes that the deleveraging caused by the crypto market’s credit crunch is coming to a close, as signaled by the shrinking of the stETH to ETH discount. 

According to the report published last Thursday by the investment bank, retail demand for crypto is on the rise and the “extreme phase of backwardation” is in the rearview mirror. JP Morgan first reported on the backwardation phenomenon in crypto markets in early June, citing a discount between future and spot markets as a signal of the reduced demand for bitcoin. 

The second half of the week had bitcoin’s price oscillating between $23,000 and $24,000 until Friday and then between $23,000 and $22,000 during the weekend. ETH’s price wavered between $1,600 and $1,500, never dipping below the price reached by Monday night.

The waning strength of the crypto market during the second half of the week may have been affected by news that Tesla had sold 75% of its bitcoin holdings ($936 million)  in order to “maximize our cash position" amid uncertainty about lockdowns due to COVID-19 in China, which hampered the electric automaker’s output. 

The European Central Bank (ECB) also surprised markets with a greater-than-expected 50 bp hike after 11 years in negative interest rate territory on Thursday.  

While both events may have had some effect over crypto markets, the more likely cause of the waning momentum as of late Wednesday is the realization of strong early-week gains. 

Lastly on Thursday, Ethereum co-founder Vitalik Buterin spoke at the Ethereum Community Conference (EthCC) in Paris. Vitalik defended Ethereum’s impending transition to a proof-of-stake (PoS) consensus mechanism as an integral part of a greater roadmap of changes and rebuked critics that argued that the move to PoS cemented Ethereum’s classification as a security rather than a commodity.     

According to the Ethereum co-founder, there will be more work to be done after the completion of the Merge, which only represents the halfway point of a planned network development plan that will lead to greater security, scalability and transaction processing capabilities.  


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