CoinLoan Weekly: Crypto sell-off, inflation fears, hopes for mid-September

Price dynamics

BTC price

After approaching $25,000, BTC spiked again at $24,438.65 on Wednesday, August 17, and descended to a tight range of around $23,500. Friday, August 19, sent it downward to around $21,400, and BTC spent the weekend barely reaching $21,500, with a 7-day low of $20,945.83 on Saturday, August 20.

Monday, August 22, did not bring any relief. The neutral sentiment was fleeting – from a high of 45, The Crypto Fear & Greed Index dove to 28 again to reflect the return of fear. Friday’s sweeping downfall was attributed to inflation concerns stoked by dismal economic data from the EU and the rising probability of another 75 bp rate hike by the Fed.

As of this writing, BTC is trading at $21,059.60, with a 24-hour slide of -2.3 and a 7-day decrease of -13.4%.

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ETH price

Ether shed more value than BTC, which it mirrored throughout the week – from around $2,000 on Monday, August 16, and $1,953.96 the following day, it fell to a 7-day low of $1,556.49 on Sunday, August 21. Despite the approach of The Merge, ETH succumbed to Friday’s pressure.

The double-digit fall came despite positive news – the anticipation of the upgrade, JP Morgan’s note to investors highlighting the “bigger revenue opportunity” for Coinbase, and the doubling of Ethereum Name Service (ENS) registrations in the last four months.

As of now, ETH is trading at $1,560.94, with a 24-hour decrease of -3.9% and 7-day plunge of -19.4%.

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XRP price

Unlike the two coins, XRP rose above its Monday’s high on Wednesday, August 17, hitting $0.388547. While it rebounded more energetically, Friday’s fall was sharp – the token sank below $0.34. The uptick to $0.347849 on Sunday, August 21, was followed by another, albeit less dramatic, plunge to $0.334988.

On Thursday, August 18, Ripple Labs Inc announced it had launched On-Demand Liquidity (ODL) services in Brazil in partnership with Travelex Bank. This may have accounted for the relative buoyancy that day. Yet the ensuing crash made XRP the biggest loser – on August 19, it tumbled by 10%, and bears seized the initiative.

As of now, XRP is trading at $0.335684, with a 24-hour slip of -2.8% and a 7-day change of -11.2%.

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Cryptocurrency news

As rally ceases, investors look forward to mid-September

Friday, August 19, put an end to the uptrend fueled by economic hopes and falling volumes. As cryptocurrencies headed downward, BTC and ETH shed around 8% in a day, and investors turned their sights on upcoming events. Mid-September is expected to bring the Ethereum Merge, new inflation data, and the Federal Reserve's rate hike.

According to Sean Farrell, head of digital assets research with Fundstrat, “They call this period the summer doldrums.” As the volumes dwindle, fund managers take time off, and “a lot of people are sitting on their hands waiting for the macro situation to look more constructive.”

From June through July 2022, while the total crypto market climbed from $820 billion to over $1 trillion, trading volumes were modest compared to last year.  Over the last 60 days, daily volumes have stayed under $70 billion. Compared to its all-time high in November 2021, the latest BTC’s bottom on June 18 wiped out 72% of its value.

The fallout from the Terra implosion is subsiding, and a dramatic market turnaround is possible. Investors are keeping an eye on technical indicators and economic health. As Farrell put it, they “want to stay on the balls of their feet.”

Michael Safai, a partner with Dexterity Capital, agrees, expecting “things to pick up in September.” Specifically, nine days between September 12 and September 21 could stir up significant crypto volatility.

• On September 12, the Consumer Price Index will supply new inflation data, while the Chicago Mercantile Exchange (CME), the world’s leading derivatives marketplace, will launch options on Ether futures.
• On September 19, Ethereum is scheduled to complete The Merge — its transition from Proof-of-Work to Proof-of-Stake. This could boost the coin’s value and slash the energy costs by 99%, as stakers will replace miners, but economic data may curb the retail enthusiasm.

Typically, major events in quick succession heighten uncertainty and prop up the volume. However, these nine days could prove more consequential than August’s news. Mid-September may bring a breakpoint that will shape the performance of the broader crypto market this fall.

Bitcoin’s price sinks on global inflation fears

The slump sending BTC below $21,500, to its lowest level in more than three weeks, started during early European trading on Friday, August 19. While the cause was not immediately obvious, the release of Germany’s dismal economic data is a likely culprit.

The PPI (Producer Price Index) is a leading inflation indicator as it reflects changes in the prices of goods set by local manufacturers. In Germany, it soared to 37.2% in July, well above the expectations of 32% and the 9.8% PPI in the US. This is the strongest annual jump since records began in 1949. The same is true for the month-on-month dynamics (+5.3%).

The primary cause is a 105% energy cost hike compared to July 2021 – a consequence of Russia’s shrinking gas supplies. The finance ministry acknowledged the “gloomy” outlook for the future of the national economy and “a high degree of uncertainty” in recent weeks.

This means the Eurozone is likely to see its inflation climb in the near future. In July, the bloc registered a record rate of 8.9%, as opposed to Germany’s 8.5%. On the other side of the Atlantic, the announcement raised the likelihood of adding 75 basis points (bp) to the federal funds rate, according to CME FedWatch.

In February 2022, this rate was close to zero. In March, the Federal Open Market Committee (FOMC) raised it by 25 bp, followed by 50 bp in May. In both June and July, the rate jumped by 75 bp. The previous increase of this magnitude was seen almost three decades ago.

An interpretation mentioned by CNBC cites the tight crypto-equities correlation. The US stock market pulled back in response to the minutes of the July Fed meeting published on Wednesday, August 17. This document suggests the rate increases will continue with no clarity regarding their size.

Additionally, Friday, August 19, brought the most massive liquidation of long positions on futures since June 18. Interestingly, on June 18, BTC also plunged to its lowest low of the year — around $17,500. The Bitcoin perpetual futures markets may have exacerbated the correlation trend, according to Simon Peters, a crypto market analyst at eToro.