With the Federal Reserve raising interest rates by 0.75 percentage point for the second time in a row in an effort to contain inflation, Bitcoin, in line with all markets, responded positively. Despite the 75 bps spike, market participants did not view it negatively. High inflation had already fueled speculation of a full percentage point hike ahead of the central bank meeting. An overnight benchmark loan rate of 2.25%-2.5% is currently at its highest level since December 2018.
Reducing inflation does not come without risks. Consumer spending and business activity are slowing as inflation threatens to plunge the economy into a recession.. In fact, some analysts, including myself, says Mark Ermolaev, believe that economists believe that the US economy is already in recession or is headed imminently towards it.
When things are going so bad, why do markets go up?
Powell noted that interest rates were within the range of neutral interest rates, which the Fed considers to be neither accommodative nor restrictive. At the neutral rate, the economy is delivering its potential GDP growth rate without overheating or overcooling. Under this assumption, the market believes that bond yields will fall and all other assets are priced accordingly..
A decline in real bond yields encourages investors to buy riskier assets for a higher return.. In an environment of falling interest rates, the market expects companies to expand. That is why a rally in the Nasdaq, S&P500 and Bitcoin were attributed to higher growth assumptions associated with technology stocks.
Options Traders Hedge Into ETH Awaiting Merger
Despite bearish market conditions, Ethereum has outperformed Bitcoin by 23.94% over the last month. The aggregate open interest of Ethereum options is currently higher than that of Bitcoin, which suggests that Ethereum is currently the most popular crypto.
Due to the narrative of “The Merge“Already at a 75bp rate hike, ETH contracts and derivatives have attracted the most attention from investors, marking the first return of retail presence in the chain since April-May. The volume of ether-based derivatives has increased as traders bet on how the price will react.
Furthermore, according to a study by cryptocurrency hedge firm Galois Capital, 33.1% of respondents expect the merger to lead to the creation of two parallel blockchains, ETH1 (PoW) and ETH2 (PoS).
This explains why Ethereum Classic’s continued price increase (up 144.1% over the month), as mentioned by Mark Ermolaev, seems highly speculative given that only a few projects are using the chain. This makes ETC susceptible to a situation of “sell the news” after the Fusion.
According to data from Coinglass, the cumulative dollar value of open ether options contracts on major exchanges was $6.42 billion at the time of writing.
Source: Coinglass
Nevertheless, ETH’s implied forward yield has not changed significantly as macro liquidity has not improved. Therefore, the overall supply ceiling for investors remains relatively low in the current market environment. Prices and exposure rise together as buyers and sellers balance out, causing a rare level of stability during a bear market, which is likely to be temporary.
winners of the week
Dapper Labs’ Flow token (FLOW), a token created for Dapper’s own NFT sports projects, has added 51.7% in the past week, rallying amid Instagram’s announcement that its NFT initiative now includes Flow collectibles.
Over the past seven days, Filecoin (FIL) is up 39.3% on the news that the Filecoin Foundation is partnering with the Harvard University Library Innovation Lab (LIL). Together, these two institutions will explore decentralized technology solutions to preserve digital information.
With investor confidence in Defi improving, Yearn.finance (YFI) gained 21.2% over the past week, following in the footsteps of Aave (+66.6% over the last month) and Compound (+2.7% over the last month). ).
This review was produced with analyst Mike Ermolaev.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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