Merge rally stumbles on inflation report

Merge rally stumbles on inflation report

Stock and crypto markets shuddered on Tuesday after August’s inflation report came in hotter than expected. [Image via Tomas Eidsvold]

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

Crypto’s Merge rally stumbled on August’s inflation report. Despite market volatility, institutional adoption continued to accelerate.

Key quotes from the cryptoverse. The highs and lows of dating crypto bros, and other amusing soundbites about Mark Cuban and crypto capitals. 

Noteworthy numbers. The number of S&P 500 companies that referenced “recession” in Q2 earnings calls, and other key stats to know this week.

MARKET UPDATE

Crypto’s Merge rally wobbles on hot inflation report, but institutional adoption continues to grow

After the Ethereum Merge officially began last Tuesday with the so-called Bellatrix upgrade, Bitcoin and Ether both gained roughly 15% into the weekend. But that rally hit a snag yesterday on the latest Consumer Price Index report (a key inflation measure for consumer goods), which rose 8.3% compared to this time last year — worse than expected and still near four-decade highs. Even as price volatility increases as the Merge’s Proof-of-Stake upgrade enters its (fingers crossed) final hours, major institutions continue to send a clearer message by expanding their bets on ETH, BTC, and more. Lots to dig into this week — let’s get started.

  • After Tuesday’s red-hot inflation report, BTC and ETH both fell roughly 10%, while stocks suffered their worst day since June 2020. Though August’s CPI reading recovered slightly from July’s 8.5% and June’s 9.1%, the higher-than-anticipated inflation numbers rocked global markets and renewed concerns that the Federal Reserve would implement a third consecutive 0.75-point interest rate hike in September to combat stubborn inflation. In an August speech, Fed Chair Jerome Powell said, “We will keep at it until we are confident the job is done.” 

  • Despite yesterday’s selloff, BTC and ETH are still trading higher than they were when the Merge began last Tuesday. Since the Ethereum upgrade started a week ago, crypto’s total market cap has retaken the $1 trillion mark; Bitcoin has recovered from the $18,000 range, and Ethereum is up from lows near $1,500. However, some traders are anticipating a “sell-the-news” moment once the Merge is complete and are hedging by shorting ETH in the derivatives market or rotating defensively into BTC. 

  • In a research report released Monday, Bank of America noted that the Merge and ETH staking may drive further institutional adoption. At the same time, the Chicago Mercantile Exchange — the U.S.’s largest derivatives marketplace — launched ETH options trading, two weeks after adding Euro-denominated ETH futures. And in Switzerland, SEBA bank announced ETH staking, citing “growing demand from institutions.”

  • Meanwhile, Fidelity is considering offering BTC trades for individual investors, per a Wall Street Journal report. The finance giant’s latest foray into crypto would enable BTC trading for more than 34 million accounts. Yesterday, the firm also announced a collaboration with Charles Schwab and Citadel Securities to form a new digital assets exchange, EDX Markets. And in May, Fidelity — the largest retirement-plan provider in America — enabled 401(k) savers to buy BTC in their employer-sponsored retirement accounts.

Why it matters… While crypto prices ping-pong between Merge enthusiasm and inflation anxiety, Wall Street continues to showcase long-term confidence in crypto markets. But one big, long-term question remains: what will the real-world impacts of Ethereum's upgrade be over time? One possibility, according to Lex Sokolin, head economist at blockchain software firm ConsenSys, is that ETH adopts a use-case historically reserved for BTC: a store of value.

TAKES

Mark Cuban responds to Dogecoin creator’s criticism, and cautionary words on romance in web3

Doge vs. shark… In a recent interview with Business Insider, Jackson Palmer, the co-creator of Dogecoin had some harsh words for Shark Tank star and billionaire crypto enthusiast Mark Cuban, who Jackson said has “drunk the Kool-Aid” about crypto. In response, Cuban shrugged off the comments: “Sounds like the same thing that has been said about every new technology I’ve been involved in. Everyone can say what they want. I’m still a huge fan of crypto.” 

Crypto capitals… Under recently elected British Prime Minister Liz Truss, the United Kingdom aims to “become the country of choice for those looking to create, innovate, and build in the crypto space,” said Economic Secretary to the Treasury Richard Fuller at the first Westminster crypto debate last week. Not to be outdone, Canada’s newly elected Conservative Party leader, Pierre Poilievre, said he wants to make his country “the blockchain capital of the world.” Somebody better alert Miami’s BTC-boosting mayor, Francis Suarez.

Love in web3… “I would never date a crypto guy again,” was how one woman summed up her experience following a seven-month relationship with a web3 startup founder. As with most things in life, your mileage may vary, but for those considering dating a proverbial ‘crypto bro,’ you can read more about the highs and lows of three such romances courtesy of Coindesk.

NUMBERS TO KNOW

240

Number of S&P 500 companies that cited the term “recession” in second-quarter earnings calls, surpassing the previous high-water mark of 212 from the beginning of the pandemic in Q1 2020. Meanwhile, 412 companies cited “inflation” in Q2.

66%

Percentage increase that venture funding for NFT and gaming firms saw in August from the previous month, according to an analysis by The Block Research. This uptick went against the overall trend for crypto funding, which has decreased for four consecutive months.

30 

Number of crypto and web3 companies that were chosen to join startup accelerator Y Combinator’s latest cohort, the highest total in the history of the program. Among the startups selected, crypto infrastructure was a common focus. (Fun fact: Coinbase participated in Y Combinator in the summer of 2012.)

0.001%

Estimated percentage of total global electricity usage per year (in kilowatt-hours) consumed by the Proof of Stake consensus mechanism, according to a new report from the White House that analyzed the environmental impact of crypto assets. By comparison, the report notes, current estimates for energy use by all crypto assets are between “0.4% to 0.9% of annual global electricity usage,” a range that “exceeds the total annual electricity usage of many individual countries.” 

AROUND COINBASE

Defending privacy in crypto, and other Coinbase news

  • Coinbase is supporting a challenge by six individuals (including two Coinbase employees) against the Treasury Department’s sanctions of open source software associated with Tornado Cash. The lawsuit asks the Court to remove these Tornado Cash smart contracts from the U.S. sanctions list.

  • How should we evaluate systemic risk and crypto? In a new report, the Coinbase Institute discusses the key factors to consider, and why crypto is better suited to absorb economic shocks than traditional finance.

  • Enthusiast Gaming has chosen to partner with Coinbase to build out its web3-enabled games, which include EV.IO, its first-person shooter game where players can earn cryptocurrency rewards for in-game achievements. The gaming company also has partnerships with Adidas, HBO Max, and Universal Pictures.

TOKEN TRIVIA

What is the name of the Merge’s second step?

A

Bellatrix

B

Paris

C

Goerli

D

Jeff

Find the answer below.

Trivia Answer

B

Paris