Summary:
According to data from Arkham, the German government’s Federal Criminal Investigative Service (BKA) may have completed the sell-off, with its holdings decreasing from approximately 50,000 Bitcoin ($3.55 billion) in mid-June to July 12 (data as of that day ET 14:38) of 0 Bitcoins.
There are concerns that a rate cut could be detrimental to markets amid concerns that the U.S. could slip into recession later this year or in early 2025, with a deeper economic slowdown.
Panel discussions and presentations at the 7th Ethereum Community Conference (EthCC), including a keynote from Ethereum co-founder Vitalik Buterin, reiterated Ethereum’s roadmap to provide maximum decentralization and security for all Layer 2 Settlement Layer1.
market view
The third quarter got off to a rocky start with oversupply as price-insensitive holders sold Bitcoin. These include the German government’s Federal Criminal Investigation Agency (BKA), which on June 19 began selling the Bitcoins it had seized. While the size of their Bitcoin selloffs (average $85 million per day) is not particularly large relative to the $10.6 billion per day Bitcoin spot trading volume (since June 1, on centralized exchanges around the world), BKA The mindless selling unnerved the market, which in turn put pressure on Bitcoin prices.
On the bright side, BKA may be almost done with the sale as its holdings have dropped to zero as of July 12, according to Arkham Intelligence data (not sure if some will be returned by CEX). But we think this suggests some of these market jitters should dissipate soon.
Meanwhile, the repayments of the Mt. Gox Rehabilitation Trust that began on July 5 also had an impact on the market, but it is unclear how many of the repaid Bitcoins were actually sold.
It is reported that exchanges approved to process repayments include Bitbank, BitGo, Bistamp, Kraken and SBI VC Trade. But repayment processing times can vary depending on the exchange and its internal verification process – from immediate (Bitstamp) to 90 days (Kraken).
We believe uncertainty will hurt the market more than any actual sell-off, as the largest creditors (i.e. third parties who purchase the claims of others) may be hedged. Furthermore, we expect any sell-off that does occur to be gradual and orderly, with only a modest impact on the market.
But stretching the timeline, how will the market behave during the rest of the season?
Recently, we have seen an increase in reports expressing concern that the United States could slip into a recession later this year or early 2025.
We take the opposite view, arguing that productivity gains from accelerated technology adoption in the post-pandemic era (including but not limited to generative AI models) will kick off a new multi-year economic cycle, possibly starting as early as Q4 2024. (Time is hard to predict.) However, typically the differences in economic views are not so wide, and parsing the increasingly complex signals is a challenge.
That being said, macro data has given plenty of evidence that the US economy has slowed (ISM manufacturing, unemployment, domestic demand, etc.) and we acknowledge that.
In fact, we think the U.S. economy is likely to peak in the second quarter of 2024 — one of the reasons we think the Fed will start cutting rates on September 18 (that’s too early in the month, and there’s no August meeting ). In fact, June CPI data released this week (-0.1% quarterly or 3.0% annually) came in below the median forecast of +0.1% and 3.1%, which may support a more dovish stance from the Fed.
The concern is that a rate cut could be detrimental to markets if the feared economic slowdown intensifies.
That said, if the U.S. economy goes into recession, retail investors may be reluctant to enter new stock or cryptocurrency positions.
On the other hand, if the economy is still performing relatively well and the Fed cuts interest rates, that could free up more liquidity and attract more retail investors to participate.
Additionally, the U.S. election is due in November, and fiscal expansion seems likely no matter who wins. In our opinion, this is a strong incentive to buy Bitcoin as an alternative to the traditional financial system.
Currently, we expect price action to remain volatile in Q3 2024 as the cryptocurrency market continues to lack a strong narrative.
For example, the market can't decide whether the potential spot Ethereum ETF flows (which experts expect to launch soon) are bullish or bearish, although we don't think that's necessarily a bad thing from a positioning perspective. Even if flows take time to materialize, this could leave room for unexpected performance and provide more support for Ethereum’s moves. But overall, we think the next two months are likely to produce more volatility until things start to improve more noticeably towards the end of September.
Image source: Bitui
EthCC Essentials
The 7th Ethereum Community Conference focused on key technical topics, including Layer2 expansion and differentiation, Ethereum pledge issuance, cross-chain interoperability, etc. Conference panels and discussions, including a keynote from Ethereum co-founder Vitalik Buterin, reiterated Ethereum’s roadmap to provide maximum decentralization and secure settlement Layer1 for various Layer2s.
Ethereum continues to focus on becoming the settlement layer Layer 1, which suggests that its execution layer is unlikely to scale significantly in the short term (in gas per second terms). Instead, it focuses more on increasing the data availability bandwidth for Layer 2 storage. However, this does not mean that Ethereum’s utility is at a standstill.
In contrast, the diversity of Layer 2 enables different technical approaches to compete quickly. Layer2 platforms such as Optimism, Base, Arbitrum, and Starknet demonstrated their unique technology and ecosystem advantages on EthCC. Layer2’s ability to quickly iterate on competing technologies is a unique advantage of the modular approach and one of the strengths of Ethereum that we highlighted previously.
Having said that, universal interoperability between Layer 2 remains a controversial issue. While many solutions appear to be technically feasible (with different trade-offs), there is currently no top winner across all chains. Communications standards tend to be a winner-take-all market due to network effects, but cryptographic interoperability faces additional challenges in resolving conflicts of interest. That said, the ability of interoperability protocols to monetize the adoption of their standards makes this space a near zero-sum game. In our view, full interoperability remains an open challenge that may take months or even years to coalesce into a clear standard.
However, we do not believe that barriers to interoperability mean that encrypted user experience (UX) will prevent users from getting started.
The adoption of account abstraction and smart accounts is gaining momentum. Beyond the core infrastructure layer, it appears that more decentralized application (DApp) developers are looking to leverage Gas abstraction and bundled transactions to simplify the DApp experience. Additionally, session key technology, which enables automated transaction approval under certain conditions, is expected to be a means to further reduce DApp UX friction, especially in DeFi (swaps) and gaming.
Staking and re-staking are also related issues.
The increase in staking rates (currently 28% of the total Ethereum supply) and the resulting decrease in net staked APY may pose long-term challenges to the economic viability of independent stakers. Likewise, concerns have been raised about the growth and centralization of Liquid Staked Tokens (LST). While no firm conclusions have been drawn, recommendations include lowering the underlying issuance curve (which should theoretically moderate staking growth) and establishing LST standards to allow for more LST diversity and competition. At the same time, re-pledge faces implementation timeline challenges. Pay and slash functionality is not yet enabled on any shared security layer. Additionally, uncertainty has been expressed about the importance of Active Validation Service (AVS)-based returns relative to the size of re-staked ether in the short to medium term (a risk we highlighted earlier this year).
For the most part, discussions at the main EthCC event focused on the infrastructure layer, although many consumer-facing applications were showcased at many side events. Applications range from AI-analyzed blockchain data, permanent on-chain gaming, novel prediction markets, and more. Having said that, it seems to us that the ratio of infrastructure to applications still seems to be more heavily skewed towards infrastructure projects than imagined.
Cryptocurrencies and Traditional Currencies Overview (Data as of July 11, 4 p.m. ET)
Source: Bloomberg
Coinbase Exchange and CES Insights
This week, Bitcoin is consolidating below its 200-day moving average. Lower-than-expected CPI data failed to propel the coin higher as supply concerns continued to weigh on the market. Ethereum is also trading in a tight range around $3,000 as traders await the launch of a spot ETF in the United States. There are very few positions in the coin, but we are starting to see a shift away from altcoins towards Ethereum. Elsewhere in the market, $SOL has held up relatively well during this month’s selloff, suggesting to some traders that it could outperform if the broader cryptocurrency market rebounds.
Figure source: Trading volume on the Bitui Coinbase platform (USD)
Source: Transaction volume divided by assets on Bitui Coinbase platform
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reproduced with permission from: "PANews"
Original author: Coinbase
Compiled by: BitPush
