Weekly Research Report: THE START OF ETH2.0 ERA

Crypto market went lower despite Ethereum successfully switched to Proof-Of-Stake on Thursday. Cryptocurrency market cap shed below $1T, Bitcoin trading below $20k and Ethereum gyrating around $1.3k. Investors tended to reduce their risk appetite by selling off risk assets after the hotter-than-expected August inflation data. The upcoming FOMC meeting this week will be the market focus, which the Fed will decide their next move on the interest rate. With higher-than-anticipated August CPI, the Fed was expected to be more hawkish and continued their tightening policy to maintain price stability.

Stablecoin dominance increased under bearish market sentiment: (BTC 38.4%, ETH 16.6%, USDT 7.3%, USDC 6.0%).

BTC perpetual funding rate turned negative (BTC: -2.7%) (Chart 1).

Ethereum funding rate was extremely negative prior to the Merge (average 24hr funding rates before Merge: -270%) since speculators tried to hedge their over-leveraged Ethereum spot positions, which intentionally bought for receiving extra hard fork rewards. FTX exchange has recorded an ever-lowest Ethereum hourly funding rate of -0.0457% (-400% annualized) two hours before the Merge happened. After the Merge, Ethereum funding rate returned to normal (less negative), and now stabilizing between -10% to -15%.

Alts’ perpetual futures continued to trade at discount with negative funding rates (ADA -14.6%, SOL -8.7%, XRP -8.6%).

The September future basis remained negative, with very narrow spread between Bitcoin spot and perpetual.

On liquidation side (Chart 2), over $337m worth of crypto positions have been liquidated this week, with 3.36 Long/Short liquidation ratio.

Chart 1: 7dma of BTC, ETH Perpetual Futures Funding Rate (Source: FTX)
Chart 2: 4hr BTC liquidation chart (Source: Coinglass)
Major Crypto KPI (Sep 19, 2022)

Ethereum successfully upgraded to Proof-Of-Stake with the Final Merge happened on Thursday. By replacing the mining activities, its blockchain energy requirements were expected to drop by over 99%. Lower carbon footprints indicate easier global adoptions among countries and institutions with less ESG concerns. Speculators who bought extra Ethereum to receive additional hard fork rewards sold their Ethereum after the Merge, plunging its price to a low of $1279 (7d: $ETH -24.0%). The hard fork version ($ETHW) rallied up from $20.6 to $30.7 in two hours since launch, then declined sharply to a low of $3.8 with tons of selling pressures, currently trading at $6.0.

Binance $22m accounting mishap, the exchange mistakenly credited four of its customers $22m worth of $HNT tokens instead of Helium’s new MOBILE tokens. $HNT price went higher following the revelation of this incident (24hr: +0.4%).

Grayscale Investments, a digital asset management firm, announced to sell $3.1m worth of PoW tokens received by Grayscale Ethereum Trust and Grayscale Digital Large Cap Fund. The net cash proceeds will then be distributed to their shareholders accordingly. In the crypto space, Grayscale was accused of its dumping actions.

Compound Treasury, a cash management solution for institutions powered by Compound Protocol, launched borrowing for institutions. Institutions are allowed to use digital assets as collateral when borrowing USD or USDC.

White House unveiled comprehensive framework for digital assets developments, following the President Joe Biden’s executive order on ensuring responsible digital assets development earlier this year.

UK financial regulator, the Financial Conduct Authority (FCA), issued a warning to customers against using FTX exchange. It emphasized that the Bahamas-based crypto exchange is not authorized to offer any financial service or product in the country.

Do Kwon, founder of Terra ($LUNA) and $UST stablecoin, was issued arrest warrant by South Korean authorities

Ford Motor Company, American car manufacturer, is ready to enter Metaverse with virtual automobiles and NFTs.

Satschel, a web3 compliance firm, raised $5.2m funding in seed round, led by Brand Name Shop Ventures. The firm aids funders and customers to onboard swiftly on web3 projects while fulfilling governing criteria.

Ownera, an institutional rail for digital assets’ networks, raised $20m in Series A funding round, backed by JPMorgan and LRC Group. The company aimed at connecting the tokenized platforms and trading interfaces being launched by traditional finance companies.

Investors’ risk appetite has been evaporated ahead of macro uncertainty. Upcoming FOMC meeting continued to be the market focus this week as the Fed will announce their next interest rate decision. With hotter-than-anticipated August CPI number (8.3% vs expected 8.1%), the majority is expecting the Fed to be more aggressive in September to bring down inflation, with federal funds rate contract showing a 16% chance that the Fed may impose a full point rate hike next week, 84% for 75bps rate hike. A hard landing for current economic situation is more likely to happen to reach the goal of price stability. Equities also declined sharply (7d: DJI -4.2%, S&P500 -5.2%, NQ -6.3%). US dollar kept showing strong price actions (DXY +1.2%, trading at 109.6). Commodities also suffered (GOLD -3.0%, Oil -2.0%, Wheat -3.2%)

Despite the successful Ethereum upgrade, crypto assets remained low under poor economic conditions. With macro uncertainty ahead of, investors are more likely to reduce their risk appetite. Majority are expecting the Fed to take more hawkish actions (another 75–100bps rate hike) to bring down inflation problem in September. SR will continue to buy the dips once the macro concern is eased and the Fed started to slow down tightening.

DYOR, Good Luck!

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