16th July 2022 > > BTC and ETH.

tl;dr

There are two key short-term events that could impact BTC and ETH price action.

Market Snap (at time of writing)

Market Wrap

Three attempts to meaningfully break through $21k were all rejected yesterday.

Maybe I am an eternal optimist, but I am struggling to see how inflation data will remain at the current elevated levels.

Supply chain constraints due to all Government’s self-imposed and wilful destruction of the economy in a huge over-reaction to Covid must now be easing. A move away from blood oil and gas (even though at a cost of increasing the use of domestic coal within Europe) will have a deflationary impact on the data moving forward, allied with a steep decrease in the year-on-year price comparisons for oil and gas. The likely move towards releasing shale reserves in the UK will prove hugely beneficial in terms of price and security of supply for all of Europe.

The oil price shock of the ‘70s caused many years of pain for Western economies.

I just do not believe that is the case this time around.

Curious Cryptos’ Commentary – Buy the rumour, sell the fact

The hacking and theft of over 740,000 BTC from Mt. Gox centralised crypto exchange leading to a shuttering of the business in early 2014 is one of the seminal moments in crypto history. At the time Mt. Gox was handling over 70% of all BTC transactions, business that was largely speculative in nature, and exchange based. It is likely that this was the event that led to the oft-repeated mantra “not your private keys, not your coins”.

The bankruptcy process is nearing its end, with a pay out of approximately 140,000 BTC to those who lost their coins. That’s an 80% haircut in BTC terms but given that BTC was trading around $1k early 2014, investors are still up 4x on their investment.

Some commentators have declared that this release of BTC will cause downward price pressure.

I think they are wrong.

For a start, everyone knows that this distribution of BTC is soon to happen, and so any negative impact that may cause is already discounted in today’s price.

But more importantly, I am not convinced that early adopters of BTC (trading at $50 per BTC not long before the Mt. Gox fiasco) will be keen to sell. If one was convinced of the merits of BTC back in 2013, that conviction has surely only grown stronger over the intervening years.

So, in true contrarian fashion, I believe that the distribution of Mt. Gox coins will result in upwards price pressure as the market has to readjust to remove the current discount embedded in the price by this event.

A classic buy the rumour, sell the fact scenario.

Curious Cryptos’ Commentary – Sell the rumour, buy the fact

The process of moving Ethereum away from proof-of-work (POW) to proof-of-stake (POS) is a regular topic for the CCC.

We are now just one testnet away from the go-live event, universally known as The Merge.

In very exciting news, September 19th 2022 has been proposed as the date for The Merge, assuming the Goerli test is successful on 11th August.

There are many benefits – and some downsides – to changing the consensus mechanism for Ethereum, though the full scale of these benefits will not be realised until sharding is implemented in 2023.

It seems likely to me that over the fullness of time, the benefits of The Merge and sharding will result in significant upward price pressure for ETH compared to other cryptos.

Clearly the market agrees with me, as yesterday’s announcement led to a 12% jump in the price of ETH. A successful test of Goerli is likely to see an ever greater price jump.

But all of this positive price action will lead to disappointment not long after The Merge, as the benefits do not accrue all at once, leading to underperformance for ETH for a time.

A classic sell the rumour, buy the fact scenario.