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Week in Review: Is the worst of the Fed rate tightening cycle over? Powell’s remarks and weak GDP figures give crypto investors hope.


The NCI closed Sunday 5.4% above last week’s closing. The index’s performance was heavily influenced by ether (ETH), up 6.6%, while bitcoin (BTC) rose 4.4%. Bitcoin closed July up over 22%, while ETH rose nearly 60% in the same period. 

The crypto market started the week on shaky ground, as bitcoin began to surrender part of the previous week's 14% gains. Bitcoin fell more than $1,000 on Monday while ETH’s price sank by over $100 — its most intense daily price drop in July. Outside of investors taking profits, uncertainty surrounding the impact of the Fed's rate hike (Wednesday) and the U.S. GDP figures (Thursday) seemed to loom heavy over the market. Investors seemed divided about the effect of the coming rate hike, despite a strong consensus pointing to a 75 bp increase to the Fed funds rate. The only exception was ETH, which started rallying on Tuesday night. 

Ethereum’s native token nearly erased all its early week losses before the Fed announcement, perhaps reflecting the news of another successful shadow fork coming online earlier than expected that sustained optimism for “The Merge” ahead of the Goerli testnet merge.  

However, early Wednesday crypto price charts began to reflect cautious optimism ahead of the FOMC’s announcement. Prices continued to creep up throughout the morning until Fed Chair Jerome Powell confirmed the 75 bp rate hike early in the afternoon.

Markets began to rally across the board as investors seemed encouraged by Powell’s remarks.  While the Fed Chair did not rule out another 75 bp rate hike, he admitted it would eventually be appropriate to take a wait-and-see approach, as Fed officials assess how previous hikes impacted the economy.

Bitcoin’s price shot up 10%, while other crypto assets showed similarly outsized gains before stabilizing on late Wednesday night.

On Thursday morning, investor focus shifted to the US Bureau of Economic Analysis (BEA) GDP figures, due to be released before US markets opened. Despite an initial dip following the announcement that the US economy shrank at 0.9% annualized rate in Q2, the crypto market quickly began to rally towards another $1,000 bitcoin price increase. 

While pundits discussed the semantics of the term “recession” after two consecutive quarters of contracting activity in the world’s largest economy, investors seemed to adhere to the “bad news is good news” narrative. The weaker-than-expected GDP figures reaffirmed bets that the worst of the interest rate tightening cycle was already in the rearview mirror.

On Friday, prices remained mostly stable despite a brief dip as markets opened in North America. During the weekend, crypto markets would remain mostly stable—outside of a bitcoin rally on Saturday morning—eventually losing steam on Sunday into the week’s closing hours.

Outside the top ten largest market caps, Ethereum Classic (ETC) registered another week of outsized gains. The Ethereum offshoot’s native token registered a 186% price increase in July, likely reflecting investors’ predictions for current Ethereum miners to migrate to Ethereum Classic—whose consensus will still rely on Proof-of-Work—after The Merge establishes Proof-of-Stake as the new consensus mechanism for the Ethereum blockchain. 



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