3 crypto storylines to watch this week

3 crypto storylines to watch this week

All eyes are on Thursday’s new inflation report, and the Federal Reserve’s response. [crbellete via Getty Images]

There’s never a dull moment on the blockchain. Here’s what you need to know this week:

Crypto and stock markets are bracing for Thursday’s inflation report. Plus how the EU’s new crypto law and an Ethereum milestone are impacting the market.

Noteworthy numbers. The tax rate Portugal has proposed for short-term crypto gains, and other key stats to know this week.

The latest updates from Coinbase. How to watch COIN, Coinbase’s new documentary.

MARKET UPDATE

3 key crypto storylines to watch this week

Lots of developments throughout the cryptoverse this week — let’s jump right in. Global markets are especially jittery ahead of Thursday’s Consumer Price Index (CPI) report, which will provide the latest data on U.S. inflation and set the stage for the Federal Reserve’s November rate-hike plans. Meanwhile, the European Union advanced significant crypto legislation, and Ethereum just hit a major milestone. So, how is this all impacting the crypto market? Let’s dig in.

Bitcoin and the S&P 500 have shed roughly 3% since Friday due to anxieties about September’s relatively strong job growth, tomorrow’s inflation report, and the Fed’s response.

  • Hiring is something the Fed is trying to slow, alongside spending and investing, in an effort to combat inflation. The U.S. economy added 263,000 jobs in September (down from August’s 315,000), but The Wall Street Journal notes that decrease is likely not low enough to prevent the Fed from implementing its fourth consecutive rate-hike, a move that pressures crypto and stocks.

  • Meanwhile, in a Monday speech, Fed Vice Chair Lael Brainard reiterated the central bank’s position: “Monetary policy will be restrictive for some time.”

  • All eyes are now on September’s CPI report, dropping Thursday. If it shows inflation remains north of 8%, near four-decade highs, some analysts believe another 0.75% rate hike is likely a certainty. (Economists surveyed by the Dow Jones expect an 8.1% annual increase.) 

  • As one analyst put it on CNBC: “There seems to be some jitters and derisking across all markets as we approach Thursday’s CPI release. Bitcoin is moving closely with equities.”

On Monday, European Union lawmakers advanced landmark legislation that would regulate digital assets across the EU.

  • The Markets in Crypto Assets (MiCA) regulation is a legal framework that outlines how providers of crypto services, assets, and wallets can register with authorities and market themselves across the EU.

  • Among the bill’s rules: Crypto issuers must publish whitepapers with project information to obtain licensing; stablecoins must have sufficient capital to maintain pegs, while non-euro denominated stablecoins face restrictions on total transaction volumes; and crypto miners would need to disclose energy consumption.   

  • Much of the crypto industry has cautiously welcomed the regulatory development, which would create a consistent regulatory regime for crypto throughout the EU’s 27 member countries.

Ethereum reached a post-Merge milestone this week, becoming deflationary for the first time since the blockchain transitioned to Proof-of-Stake.

  • This is because more ETH was burned while verifying transactions than was created in the same time period, leading to a –0.13% supply reduction (about 4,000 tokens) over the last week. Since the Merge, the rate of new ETH creation has dropped nearly 90%.

  • Despite theories that a drop in ETH supply would correspond with higher prices (assuming demand remains constant), ETH’s price has dropped roughly 4% over the last week.

  • An ETH-based token project called XEN prompted Ethereum’s deflationary burn rate this weekend when it drove a massive spike in network traffic that also caused ETH’s burn rate to increase. XEN subsequently raised some eyebrows on Crypto Twitter, leading some observers to question the project’s economics.

The big picture… Hovering behind the uncertainty regarding Thursday’s CPI report is a larger macro question for crypto: will it remain correlated to the stock market, especially as the risk of recession looms? (This week J.P. Morgan CEO Jamie Dimon said he thinks we’re still six-to-nine months away from the worst of it.) In recent weeks, the crypto-stock correlation has weakened somewhat, but still remains positive. At the same time, crypto volatility has been relatively subdued for the last month (BTC has mostly remained in the $19,000 to $20,000 range) compared to the Dow Jones and S&P 500, which had their worst month since March 2020. So, will the two markets continue to move in lockstep or diverge? Only time will tell.

NUMBERS TO KNOW

35.6 trillion

Number of hashes required to mine one Bitcoin as of Monday, an all-time high for mining difficulty on the network. (Mining difficulty represents how many guesses a miner will need to make to solve the time-consuming math puzzles that will earn it the right to add a new block of transactions to the chain.) Monday’s difficulty hike, which marked a steep increase of 14% since the last measure, was the latest bad news for Bitcoin miners, who have seen their revenue plummet this year amid the crypto bear market.

$570 million 

Amount of Binance Coin (BNB) taken last week during the hack of a blockchain bridge in the exchange’s BNB Chain. (Bridges are used for moving assets from one blockchain to another.) According to a report from Chainalysis published in August, attacks on bridges accounted for “69% of total funds stolen in 2022 so far.”

12,053

Number of Brazilian companies that reported buying crypto in August, according to reporting from the country’s tax authority. The latest figure represents a record-high, as well as a five-fold increase from August 2019, when firms initially began reporting their crypto activity to the government, according to CoinDesk. 

28%

Rate at which Portugal has proposed taxing gains on crypto held for less than a year. Such a move would mark a notable shift for the European nation, which is known for its crypto-friendly policies, including not taxing gains from personal investment in crypto. Crypto held for more than a year would still be exempt from tax, however.

TUNE IN

COIN: A Founder’s Story offers an inside look at Coinbase’s origins and unprecedented rise

Nearly three years ago, Coinbase began working with documentary filmmaker Greg Kohs on a movie about the company's story. The resulting film, COIN, is now available to stream in the U.S, and chronicles, as Coinbase CEO Brian Armstrong put it, "the crazy ups and downs of building a tech startup all the way to us becoming a public company."

The journey from Satoshi Nakamoto’s Bitcoin whitepaper to the first publicly traded crypto company sounds like one of those mythical business stories, but COIN dives into the essential human elements of asking big questions and solving even bigger problems. “I wanted to demystify what it looks like to build a tech startup and to encourage people to pursue entrepreneurship,” Brian said. “I also wanted to demystify crypto.”

TOKEN TRIVIA

What is the smallest unit of a Bitcoin?

A

1 Buterin

B

0.001 BTC

C

1 Satoshi

D

0.01 USD

Find the answer below.

Trivia Answer

C

1 Satoshi