Coinbase, in its weekly market commentary, noted that the Q3 started on a sour note with supply overhangs generated by indiscriminate Bitcoin selling from sources like the German government. While the size of the Bitcoin sales hasn’t been large relative to daily BTC spot volumes, it has put pressure on Bitcoin prices.
However, today, the German Government has emptied all its Bitcoin holdings, suggesting that some market distortions should dissipate soon.
Will it be smooth sailing ahead or is more trouble coming?
The repayments from the Mt. Gox incident, which began on July 5, have also impacted the markets. The extent to which the repaid BTC is being sold remains unclear. Coinbase emphasizes that this uncertainty is more detrimental to the market than actual sales, as the largest creditors are likely hedged. Concerns persist about the potential for a US recession later this year or in early 2025, adding to market volatility.
Acknowledging the current economic landscape, Coinbase notes substantial evidence of a slowdown in the US economy. It believes the economy peaked in Q2 2024, and anticipates the Federal Reserve will cut interest rates starting September 18.
The recent CPI print from June, showing a -0.1% month-over-month change and a 3.0% year-over-year change, fell below median forecasts, supporting a more dovish stance from the Fed.
Coinbase warns that rate cuts might not be bullish for markets if there is fear of a more significant slowdown. Retail investors may hesitate to take new positions in stocks or crypto if the US economy enters a recession. Conversely, if the economy remains relatively strong and the Fed cuts rates, it could unlock more liquidity and attract retail participation. The upcoming November US elections also present a possibility of fiscal expansion, potentially boosting Bitcoin as an alternative to traditional financial systems.
Choppy Waters Ahead!
Looking ahead, Coinbase expects volatile price action in Q3 2024 as crypto markets lack strong narratives. For instance, the market is undecided on whether a potential spot ETH ETF will be bullish or bearish. This uncertainty could be advantageous, allowing room for surprise outperformance.
The 7th Ethereum Community Conference highlighted critical technical themes, including layer-2 (L2) scaling, ETH staking issuance, and cross-chain interoperability. Discussions and panels, including a keynote by Vitalik Buterin, reaffirmed Ethereum’s commitment to being a maximally decentralized and secure layer-1 (L1) settlement layer for various L2s.
Also Read: Crypto Market Analysis: Is the Bear Run Finally Over?
While challenges remain, Ethereum’s focus on scalability paints a bright picture for its future.
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