Relief turns into Consolidation

ETH clearly has the stronger momentum, fuelled by earlier Merge news (see last week’s article), and continued positivity coming out of EthCC. The price broke past many smaller resistance levels and at one point, managed to scale to ~$1,640 (+57.5% from the start of 13 Jul) before retreating. It spent the rest of the week oscillating in the $1,500 - $1,600 range, and it’d be interesting to see if this new price level can hold. Meanwhile, BTC peaked at $24,000 and oscillated in the $22,000 - $24,000 range. 

Tesla Selling BTC

Despite operating in a decentralized space, there has been a persistent behavior of personality cult ‘worshipping’. We have seen this repeatedly, whether it be Vitalik Buterin, Andre Cronje, or Do Kwon. Prominent figures in crypto carry great influence and can affect how people perceive the space, especially our bags. Outside of crypto, however, we have the controversial tech entrepreneur that is Elon Musk. During the bull market, the Tesla founder has repeatedly shown his ability to move markets at the whim of a tweet, especially for Dogecoin. 

Source: CoinDesk

When Musk first announced that Tesla bought Bitcoin in February 2021, the price jumped from $35k to $42k overnight. Later, we would find out that about $1.5B worth of BTC was bought. However, fast forward to Q2 2022; during Tesla’s quarterly earnings report release last week, the company disclosed that it had sold 75% of its BTC assets. What once would have been an earthshaking event for crypto instead seem irrelevant now - in fact, BTC was slightly up during the day itself.                                                                    

Sure, timing is an important factor - we were in the midst of what is most likely a relief bounce after weeks of FUD and relentless selling, forced or otherwise. Since the 2021 bulls, Musk has become an increasingly polarizing figure, resulting in a waning influence and turning away supporters. However, perhaps the more important takeaway is that crypto has seen a growing disregard for ‘figures of authority. Andre was once hailed as the OGs of DeFi but has now decided to leave. Do Kwon was extremely confident in Terra’s mechanics but was decidedly humbled by its crash. These events have likely exacerbated a cycle of apprehension against ‘influencers.’ It is a pervasive contradiction that is useful to grow the space but goes against the principles of decentralization - something even Vitalik has discussed.

Contradiction between my preference for reducing reliance on individuals and trying to build fixed systems that can stand the test of time and my appreciation of "live players" and their role in helping the world move forward.

— vitalik.eth (@VitalikButerin) May 17, 2022

There’s also obviously confirmation bias at play - we prefer to celebrate events that are aligned to our own interests, while also dismiss events that do not align to our narrative. In this case, Tesla buying BTC and DOGE earlier were clearly “proof” of crypto’s longer term potential, whereas them selling now was just Elon being “paper hands”. While the truth is probably somewhere in between, the point here is that we must be conscious of our biasedness in the space. We should not rely on other influencers and celebrities. Even ‘experts’ can be wrong #3AC #Jump #DoKwon and it doesn’t make sense to blindly follow personalities. You should always assume that traders trade out of their own self-interest, instead of any sort of altruistic behaviour.

Nexo (& KuCoin?)

FatMan has been at the forefront of the Terra FUD, but another anonymous Twitter account, otteroooo, has grown in spades (which has since been deactivated) to capture other segments of the Terra fallout. The account claims to be the front for a group of on-chain sleuths. In particular, they have been directing their efforts to spread FUD about Nexo and KuCoin and their supposed insolvency issues. 

Source: Archived images from Google Images

While the effects of the Terra / 3AC fall-out contagion may not be completely played out anytime soon, we cannot emphasize enough that such information is unverifiable and can easily be manipulated. From Nexo’s perspective, the team has repeatedly denied any contagion effect from Terra / 3AC. The latest reports also seem to indicate that despite large amounts of withdrawals, Nexo has been able to service them thus far. 

Nexo has now experienced a decline in customer liabilities of 78,659 BTC (~30% of customer liabilities) since May 12th per Armaninos daily attestations. pic.twitter.com/BtORsvXn0r

— Vetle Lunde (@VetleLunde) July 13, 2022

From Kucoin’s perspective, the team has come up with an article to refute all claims here. The CEO has also recently come out to refute rumors of lay-offs and stated that instead, they’re trying to fill ~300 open positions. 

Big Week Ahead for the US Market

Major US macro and equity data releases are coming this week that could move markets. While the macroeconomic policy will probably grab the largest headlines, don’t sleep on equities earning reports, particularly as the crypto market has been so closely correlated with the S&P500. Many companies releasing Q2 earnings this week, e.g. Apple, Amazon, Alphabet, Meta, etc., are all large caps on the index. The S&P closed lower last week amidst disappointing results by Twitter and Snap. 

Going by chronological order, on Tuesday, July 26, major tech companies such as Microsoft and Alphabet (Google) will release their Q2 Earnings Reports, alongside other major companies such as Coca-Cola, McDonald’s, General Motors, and General Electric. On the same day, broader US housing data will be released in terms of New Home Sales for June and the S&P Case-Shiller national home price index for May.

Wednesday, July 27, is rate hike day when the two-day FOMC meeting starts, and an announcement will be made on the Fed’s latest interest rate decision. The market consensus seems to be that this will be another 75bps rate hike, though all eyes and ears will be more focused on how Fed Chair Jerome Powell speaks about the Fed’s outlook on inflation and future monetary policy actions. On Wednesday, we also get Q2 earnings results from the likes of Meta, Boeing, Ford, Qualcomm, and T-Mobile.

Thursday, July 28, is another big macro day as the first advanced GDP estimates for Q2 are released. US GDP is forecast to have risen an annualized 0.5% during the April-June period, according to the median estimate in a Bloomberg survey of economists. However, the Atlanta Fed’s GDPNow model is estimating -1.6%, and if it really comes in negative, this would mean the US economy would have entered into a technical recession. Also being released is the data on Initial Jobless Claims for the past week. Thursday also sees the Q2 earnings release from Apple and Amazon, together with Mastercard, Pfizer, Merck & Co, Comcast, and Intel. 

Some Thoughts 

1. The ECB announced a larger than expected rate hike last week by 50bps, bringing its deposit rate to zero. Despite this, the crypto market barely reacted to the news. Whether this is a case of the hike already priced in, or just a collective shrug and indifference towards the current state of the Europe and its economy is anyone’s guess, but we have observed that markets are generally pretty quiet during the “European session”. However, elevated inflation in Europe (and Japan) could have greater macro-consequences, as explained by Arthur Hayes in his two-part article here and here. Something to watch out for as the situation further develops.

2. ETH is looking strong compared to everything else but is trading tightly within range. Usually, this indicates compressed price action, which is bound to breakout in either direction during a catalyst. Keep a close eye on the FOMC meeting, which will likely be the trigger.

3. Notwithstanding macro, ETH’s final testnet, Goerli, is now scheduled to Merge some time between August 8-10 (process starts August 5). We discussed last week that “local” coin news can also fuel momentum, and a successful Merge for Goerli would be bullish for the Ethereum ecosystem as that’s the final key milestone before testnet itself. 

This article was produced in collaboration with Zhong Yang Chan. You can follow him on Twitter here.