CoinLoan Weekly: Risk asset rise, unmatched BTC, ETH’s deflation

Price dynamics

BTC price

BTC’s slim range around $20,000 ended late on Tuesday, September 6. The coin dropped below $19,000, with a 7-day low of $18,650.25 the next day triggered by a decline in stocks. Friday, September 9, pushed it back over $21,000. The weekend brought steady growth culminating in a high of $22,391.45 on Monday, September 12.

Throughout the week, BTC was apparently influenced by the US dollar and the global stock market. Wednesday’s drop triggered a sell-off across the board, with the total market cap descending below $1 trillion. Fed’s policy tightening strengthened USD, impacting all risk assets. As it moved back down on Friday, September 9, BTC surged. On Saturday, The Crypto Fear and Greed Index reached 28, a score last seen on August 28.

As of this writing, BTC is trading at $22,428.51, with a 24-hour rise of +3.7% and a 7-day gain of +12.3%.

BTC price chart. Source: CoinGecko
BTC price chart. Source: CoinGecko

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ETH price

ETH’s rise above $1,650 on Tuesday, September 6, coincided with the launch of the final hard fork before The Merge. In keeping with BTC, the price bottomed out at $1,502.29 the following day. Its ensuing climb intensified on Friday, September 9, and pushed ETH to a 7-day peak of $1,780.39 on Sunday, September 11.

Despite the Bellatrix upgrade, ETH failed to outpace BTC. Its underperformance could reflect the rotation of funds out of ETH into BTC, according to CoinDesk’s sources. Some analysts link it to caution ahead of The Merge and the increased demand for stETH (staked Ether). Despite the anticipation, ETH resumed falling on Monday, September 12.

As of now, ETH is trading at $1,727.79, with a 24-hour slip of -2.1% and a 7-day growth of +9.4%.

ETH price chart. Source: CoinGecko
ETH price chart. Source: CoinGecko

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XRP price

After a momentary rise of over $0.34 on Tuesday, September 6, XRP headed downward, following the rest of the market. Like BTC and ETH, it plunged to a 7-day low on Wednesday, September 7 ($0.316584) before rebounding. Saturday, September 10, brought a peak of $0.361093.

On Friday, September 9, XRP broke out of its slim range between $0.32 and $0.34, reaching the 50-day SMA ($0.35). Despite the 5-day gain of 16% by Monday, September 12, it remains to be seen if bulls can sustain the rally. Meanwhile, a settlement between SEC and Ripple could be reached by the end of November, according to US legal counsel Jeremy Hogan.

As of now, XRP is trading at $0.356949, with a 24-hour climb of +0.4% and a 7-day jump of +7.4%.

XRP price chart. Source: CoinGecko
XRP price chart. Source: CoinGecko

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Cryptocurrency news

BTC sees strongest gains since July

Last week, the world’s leading cryptocurrency saw the strongest rally since July 19. Following the fall of the Bloomberg Dollar Spot Index, BTC broke out of the slimmest range in around two years, gaining about 10%, the biggest daily hike in six months.

As the dollar index lost 0.9% on Friday, September 9, the entire Group-of-10 strengthened against the greenback. BTC outpaced the majority of other digital assets, including ETH and ADA. This was unusual, as altcoins tend to show stronger fluctuations than the pioneer. The MVIS CryptoCompare Digital Assets 100 Index gained 6.1%.

Some experts prescribe caution to investors anticipating a bull run. Due to central banks grappling with high inflation numbers, “the current surge in the crypto market might be short-lived,” says Tarusha Mittal, co-founder of UniFarm. Tagus Capital’s Ilan Solot has expressed a similar view, citing the “risk-on in global markets” coinciding with the crypto bounce. “US CPI is due on Tuesday, so expect correlations to remain elevated if markets become volatile again,” he explained.

The uncertainty around further central bank measures partly accounted for September’s tight range. It is not clear how far the institutions will go in their efforts to curb runaway inflation. This lack of guidance prompts some analysts to monitor futures for cues.

Recently, a few major exchanges have registered rising open interest in BTC futures, a possible indicator of a coming breakout. According to Kaiko’s crypto analyst Riyad Carey, “It appears that there was a bit of pent-up demand for BTC (and BTC volatility), which has traded in a relatively tight range for the past couple of months with decreasing volatility.”

BTC regaining support at $22,000-$25,000$22,000–$25,000 could improve confidence and relieve some of the selling pressure across the market, Mittal suggests. Currently, both BTC and ETH are down around 50% this year.

The apprehension about the economy and geopolitics also explains BTC’s growing correlation with stocks. On Friday, as the dollar’s decline rekindled some of the interest in risk assets, BTC’s 90-day correlation with the S&P 500 reached 0.59, according to TradingView. For the tech-focused Nasdaq, this indicator rose to 0.62. A correlation between 0.5 and 0.7 is interpreted as moderately strong.

With The Ethereum Merge around the corner, bulls await deflation

The countdown to The Merge has officially begun. Ethereum should complete its transition to proof-of-stake (PoS) consensus protocol around September 13–16, provided there are no hiccups. The upgrade is expected to have a deflationary effect on ETH supply and price.

The number of tokens or coins in circulation can either prop up the price or bring it down. Deflation, the reduction of cryptocurrency supply, is advantageous for bulls, as Bloomberg explains.

Crypto networks mint new tokens or coins continuously to attract and retain participants through rewards. In Proof of Work (PoW), which Ethereum is abandoning, rewards compensate miners for the energy and computing power spent. PoS replaces miners with validators, slashing the number of new coins minted for rewards by around 90%.

Ethereum issues new coins at an annual rate around 4.5%. At the same time, the network also burns – destroys – a share of the transaction fees paid by its users. This process was introduced by the EIP-1559 upgrade, a part of the London Hard Fork, on August 5, 2021.

By September 1, 2022, the network had burnt over $5 billion worth of Ether. The resulting increase in supply, or net coin supply inflation, is around 2%. The Merge is expected to lower it to zero or a negative percentage, as burning will continue after the upgrade. This could boost the value of every existing ETH coin.

This month, the cryptocurrency has grown by nearly 4% ahead of The Merge. According to estimates by Crypto tracker Ultra Sound Money, the total supply could peak around the time of The Merge before heading downward. ConsenSys expects deflation to begin in the spring of 2023, but opinions on the subject vary.

On Tuesday, September 6, the Ethereum team activated the final hard fork – Bellatrix upgrade – which prepares the PoS Beacon Chain (Consensus layer) for merging with the mainnet (Execution layer). The Merge will be triggered by reaching the Terminal Total Difficulty (TTD)  – the cumulative difficulty of all mined Ethereum blocks – of 58,750,000,000,000,000,000,000. Mining new blocks will become impossible. The next steps on Ethereum’s roadmap include sharding and rollups meant to improve fees and speeds.