Cryptos, Equities Slide on Central Bank Decisions, Merge Aftermath

Cryptocurrencies and global equities are due for a volatile week amid ongoing turmoil in the digital asset space and ahead of various central banks’ monetary policy decisions. 

Bitcoin briefly rose above $20,000 earlier in the week before falling to under $19,000 Tuesday. Ether lost 1.2%, falling below $1,300 for the first time since mid-July.

“Bitcoin and the crypto market saw a significant bounce Monday, before finding resistance at $19,666 – the 2017 bull market top, a key resistance,” Marcus Sotiriou, analyst at the publicly listed digital asset broker GlobalBlock, wrote in a note Tuesday. “Investors are very cautious ahead of the Federal Reserve decision tomorrow.”

The S&P 500 and tech-heavy Nasdaq were also veering lower during Tuesday’s trading session, down 1% and 0.6%, respectively. 

Ether extended its loss from earlier in the month following the highly anticipated Ethereum Merge, which saw the second largest blockchain switch from proof-of-work to proof-of-stake. The currency has lost more than 7% in the past five days since the Merge’s successful completion early Thursday morning.

“We see a classic example of market psychology. Project quotes grew on expectations of a major event. In this case, many traders bought ETH in advance in order to sell on the increased hype by the principle of ‘buy the rumor, sell the fact,’” said Serhii Zhdanov, CEO crypto exchange EXMO. “Naturally, there were fewer buyers after the completion of the Merge.”

Zhdanov is confident that the price can turn around, especially given that a lower transaction cost means the network will be more accessible to users. 

“This can increase the adoption of dapps working in the Ethereum ecosystem,” he added. 

World braces for potentially bearish news

The volatility from last week shows no signs of slowing, with more market-moving events scheduled for the coming days

On Thursday, the Bank of Japan is slated to release its monetary policy decision, and the Bank of England will reveal its interest rate choice. Initial jobless claims in the US are also expected Thursday. Investors will be watching for indications of labor market strength to gauge the likelihood of a recession. 

On the eve of the Fed’s September rate hike decision, futures markets predicted an 82% chance of a 75 basis point rate hike and an 18% chance of a 100 basis point increase, according to data from CME Group.

Crypto markets were also reeling Tuesday following reports that liquidity provider Wintermute’s DeFi operations had encountered a $160 million breach. The latest incident marks the firm’s second hack this year. In June, 20 million Optimism tokens were stolen by exploiting a failed transaction with Wintermute.

“This is a negative development within the DeFi space, and it will not help with the confidence of TradFi (traditional finance) institutions who are looking to enter the DeFi space,” Sotiriou said. “As Wintermute were one of the biggest liquidity providers in the industry, they may be forced to remove liquidity in order to mitigate further risk from their loss.”

---

Get the news in your inbox. Explore Blockworks newsletters:

• Blockworks Daily: The newsletter that helps thousands of investors understand crypto and the markets, by Byron Gilliam.
• Empire: Start your morning with the top news and analysis to inform your day in crypto.
• Forward Guidance: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.
• 0xResearch: Alpha directly in your inbox. Market highlights, data, degen trade ideas, governance updates, token performance and more.
• Lightspeed: Built for Solana investors, developers and community members. The latest from one of crypto’s hottest networks.
• The Drop: For crypto collectors and traders, covering apps, games, memes and more.
• Supply Shock: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.