We are still crabbing but saw some signs of decoupling from TradFi last week. That has persisted into this week but unfortunately, in the wrong direction.
Source: CoinGecko and Yahoo Finance
The S&P 500 saw a strong relief bounce after weeks of relentless selling. This came on the back of the release of the latest Fed FOMC Meeting Minutes, which reinforced earlier expectations of two more 50bps rate hikes in the next two meetings, but left the door open for possible policy flexibility after that as the economic situation responds to monetary policy tightening. Last week’s relief rally was probably the result of “no news is good news”, and some hopium that the Fed may slow down, or even pause tightening measures if they see inflation trending in the right direction. We’re keeping an eye on inflation numbers, and also employment as the jobs market (including crypto jobs) responds to slowing economic growth.
Usually when there’s an equities relief bounce, crypto follows suit, but BTC was noticeably lackluster, still trading within range but with a slight deviation dump. You can think of crypto as a risk-on asset for institutions. When stocks rally, crypto often rallies higher. At the time of writing, however, BTC broke the $30k range and did a mini-short squeeze to $31k. In other words, BTC’s reaction could just be a delayed effect over the weekend as market participants make their move. The timing of these moves aligns with Asian markets opening, suggesting that Asia has been buying the dip - this has been noticeable over the past few weeks, more so than US markets in any event. While we are not financial analysts, we do want to highlight that a lot of CT influencers with good trading track records are growing more confident of a bottom forming, including CL207, Pentoshi, Wolf, Zaheer, and even DegenSpartan, the stablecoin maxi. If you are a more conservative trader, however, you might want to wait for the US markets to open on Monday and see where that leads.
Ethereum Beacon Chain Re-orgs
On May 25, Martin Koepelmann, CEO and Co-Founder of Gnosis, first raised the alert on Twitter that there has been a seven-block re-org on the Ethereum Beacon Chain.
The Ethereum beacon chain experienced a 7-block deep reorg ~2.5h ago. This shows that the current attestation strategy of nodes should be reconsidered to hopefully result in a more stable chain! (proposals already exist) pic.twitter.com/BkQrKuUlw1
— Martin Köppelmann 🇺🇦 (@koeppelmann) May 25, 2022
For those unfamiliar with what a re-org is, here’s a quick rundown:
-
The way a blockchain typically works - a proposer (PoW miner / PoS validator) proposes a valid new block that is accepted by consensus and added to the chain.
-
However, as there are multiple proposers working on the chain, sometimes two blocks are proposed at roughly the same time and are both “accepted”. This creates a temporary fork in the chain.
-
It’s important to note that this happens fairly frequently. How this is resolved typically is that the chain consensus quickly coalesces around a particular block, and the chain continues on from that. The “orphan” block is quickly discarded, and any unrecorded transactions are just added back to the mempool to be recorded in a later block.
-
However, sometimes these forks go on slightly longer than a block or two, which means that when the chain eventually coalesces, more than a few “orphan” blocks need to be abandoned. This is known as a re-org.
Source: Barnabé Monnot
Hence, a "seven-block re-org" that occurred last week is simply the abandonment of a seven-block orphan fork (75 - 81 as illustrated above) in favor of blocks 74, 82, and subsequently 83 onwards. While the technical explanation of this particular occurrence is beyond the scope of this article, you can find more explanation on this from Terrence Tsao’s tweet thread and Barnabé Monnot’s substack post. tl;dr the re-org likely came as a result of a new feature known as “proposer boost” which was being rolled out as a soft fork upgrade of Ethereum clients. Given that this feature was being rolled out gradually by different clients, some nodes had the upgrade but not others.
Based on the post-mortem analysis, a malicious attack has pretty much been ruled out, and such an occurrence is unlikely to occur during the Merge (as the Merge is a hard-fork upgrade). However, this has not stopped the event from spooking Ethereum holders, sending the price of ETH tumbling during the week from ~$2,000 to ~$1,700.
Source: CoinGecko
In addition, as reported in CoinDesk, there were >$236M in ETH futures liquidations last week, according to data from Coinglass, likely stemming from this event. The losses were unusual for ETH, which mostly sees lower liquidations than BTC on average trading days. However, the price of ETH eventually recovered over the weekend and is now trading at ~$1,900.
While this event may be just another blip on the road, the biggest lingering question for most watchers is whether this will delay the timeline for the Merge. While no official timeline had been announced, it was widely expected that if all goes well, the Merge would occur sometime in Q3 2022, possibly in August. In any case, from last week’s Ethereum All Core Dev’s call, a delay of the difficulty bomb was discussed, though devs still seem pretty optimistic that the development for the Merge is on-track, and if there is any delay it really is to allow for more testing to be conducted prior to the Merge. At the end of the call, it was agreed that any delay of the bomb should come as an EIP proposal to be discussed during the next call.
Source: CoinGecko
Despite ETH’s weekend recovery, however, it has been performing rather poorly relative to BTC. Even with the looming Merge narrative, there are growing concerns about the shift towards Proof of Stake and re-orgs (as discussed above). That being said, the ETH/BTC ratio is at year-long historical support. If the trend continues, ETH will likely outperform BTC over the next few weeks from a purely TA perspective (flippening curse begone).
Closing Thoughts
While altcoins continue their death march, the cycle of rotation towards majors like BTC and ETH are playing out. DeFi TVL on Ethereum has actually been retracing the past two weeks (in ETH terms), while alt-chain TVLs continue to languish. Be cautious on trying to go against this psychological shift in bear markets, unless you are betting long-term on alt bags. However if you have some high conviction bets, DCA-ing in to accumulate a position is not a bad strategy.
What else are we paying attention to
-
Countries are becoming increasingly protective of their domestic resources, disrupting an already weakened global supply chain. Malaysia, for example, has banned the exports of chicken due to shrinking supplies. Expect more local-centric policies around the world as nations disentangle themselves from globalization. Macro-fears will become a stronger reality over the next few months. The question of whether it is priced is, however, another factor entirely.
-
The Cambridge Centre for Alternative Finance released their latest Bitcoin Mining Map report recently for data up to end-Dec 2021. From this latest release, it seems that the earlier narrative of the Great Mining Migration out of China has been largely proven false, as reported hashrate from China, other than a short disappearing act in August and September of 2021, re-appeared on the map (pardon the pun) and is now at ~20% of total global hashrate. While there is obviously a decline from pre-China government crackdown where >50% of hashpower was from China, they are still ranked second (behind the US) in terms of global rankings, ahead of Kazakhstan. While China is unlikely to regain hashpower dominance given an unfavorable regulatory environment, it does set up an interesting competition between Chinese and US miners who have upped their investments in mining more recently. With rising global energy prices, it will be interesting to see how this impacts miners and hashrate distribution at all.
This article was produced in collaboration with Zhong Yang Chan. You can follow him on Twitter here.
Benjamin is an ex-consultant who is tapping into his legal roots to explore the world of crypto. Follow the author on Twitter @NeBB399
Or check it out in the app stores
