Crypto’s Rally Fizzles Out - Chung's Weekly Digest (8/22)

Looming Recession

Bitcoin’s ($BTC) rise appears to have fizzled out after a technical rally came to a halt as fears of a looming recession resulted in profit taking.

Bitcoin is now forming a textbook pattern of a bear flag. A bear flag is a technical pattern that extends an existing downward trend; a strong capitulation followed by a consolidation in an ascending channel. In short, on a micro level, the market is bearish.

Bitcoin’s next wave up must be fueled by a fresh flow of liquidity. This is however drying up as the costs of borrowing are due to increase further. The U.S. Federal Reserve (Fed) is struggling to combat stubborn inflation without bringing the overall economy to a grinding halt.

The crypto market might be short of fresh funds if investors are not prepared to risk their capital until the overall economic outlook improves.

It is extremely difficult to predict inflation but one major factor that has exacerbated the current predicament is the previously unrestrained money printing which could have been avoided.

Weekly Recap

• Injective Protocol raises $40 million to expand its ecosystem.
• PancakeSwap revises GameFi plans and hints at multi-chain expansion.
• Binance salvages $450K from the Curve Finance hack.
• Axie Infinity enters phase 3 of game transition.
• Phenix Finance becomes the official KYC provider for Ebisu’s Bay.
• Binance integrates PancakeSwap search widget into its mobile app.
• Floki partners with Chainlink to secure token locking process.
• CoinGecko unveils new tokenomics page.
• Hell’s Kitchen is coming to Sandbox.
• Jump Crypto joins Solana’s team to improve on blockchain infrastructure.
• Bull Society brings passive income with Hypermine.
• PancakeSwap launches bCAKE to boost liquidity farm yields.
• Celer Network shuts down multi-chain bridge.
• BNB Chain launches Web 3 stars accelerator exclusively for Vietnam.
• Binance gets preliminary license to operate in Kazakhstan.
• Stader Labs hit by $800K exploit.
• Crypto.com granted FCA license for UK operations.
• Phantom wallet activates NFT spam burning mechanism.
• Tether brings on top 5 accounting firm to report on USDT reserves.

Market Sentiment

$BTC is struggling to maintain a $400 billion market cap as renewed fears of recession are engulfing the equities markets. Investors are waiting anxiously to see how the market responds to the steps taken by the Fed. If the Fed continues to aggressively hike interest rates, the economy might dip into a recession.

The aggressive interest rate hikes are not guaranteed to rein in inflation. One of the catalysts that sparked the recent relief rally in the S&P 500 and the crypto market is the price of fuel. The U.S. has brought down the price of fuel by drawing on its Strategic Petroleum Reserve. This is a short term measure to temporarily restrain the price of energy from escalating further.

If the global geopolitical situation does not improve, petroleum reserves will be depleted. Demand from the U.S. alone will cause a sharp rise in price and will send inflation numbers through the roof. Temporary measures are often risky moves that will cause a sudden jolt in the market if circumstances turn unfavorable.

Ethereum, the second-largest crypto asset by market cap, will be undergoing its biggest upgrade to date in September. Some spectators are expecting a huge price movement. However caution must be exercised. Any hiccups will send the asset plummeting. In the short term, the Ethereum network will not suddenly become more scalable.

The price of $ETH is still highly correlated with $BTC. Adverse price movement in $BTC will affect $ETH.

Coins to Watch

• Ethereum ($ETH) - The community is divided on the upcoming upgrade that will change the consensus mechanism from Proof of Work (PoW) to Proof of Stake (PoS).
• The interest on the second-largest crypto asset generated by the impending upgrade will likely give it the boost it needed to make up lost ground.
• Investors must be careful in order not to be caught buying the top as some sell-off is expected as the Merge inches closer.
• $ETH remains an asset that has a better risk-reward ratio compared to $BTC and will be a valuable addition to an investor’s portfolio.
• Ethereum Classic ($ETC) - $ETC was originally known as Ethereum but a split in the community after the DAO hack in 2016 relegated $ETC to the role of second fiddle.
• Miners are choosing $ETC as $ETH moves to PoS leading to a surge in its price. $ETC reached a high of $45 before plummeting to its current price of $32.34.
• Miners will migrate to the $ETC network if they wish to continue their mining activities.
• However, the current price rally is not sustainable. It is a result of speculation and hype and will unlikely change the course of the Ethereum Classic network.
• If the overall market sentiment remains lackluster, shorting $ETC might be a strategy that can work given the substantial gains over the past few weeks.