5 Things to Know in Crypto Today: ETH Hovers Under $1.8K as Traders Await Key Testnet Merge Trail-run

Key Points

• Cryptocurrency markets are in consolidation on Tuesday, with Bitcoin just under $24,000 and Ethereum just below $1,800.
• JP Morgan analysts think “Merge” anticipation is behind much of ETH’s recent outperformance, with this week’s Goerli merge trial-run eyed.
• New York Fed data showed easing US Consumer Inflation Expectations for 2023, a positive sign ahead of Wednesday’s CPI.

Cryptocurrencies Consolidate Ahead of Upcoming Risk Events

Cryptocurrency markets are in consolidation on Tuesday after a broadly positive but quiet Monday session. Bitcoin was last changing hands in the $23,800s as it continues to find resistance in the $24,000s, but very much still looks to be in an uptrend. Ethereum, meanwhile, is trading just under $1,800, having cracked above the level on Monday for the first time in nearly two months.

Cryptocurrency traders are in wait-and-see mode ahead of the release of US Consumer Price Index figures on Wednesday which could result in a significant short-term chop depending on how the data influences Fed tightening bets. Ethereum’s “Merge” trial run of its Goerli testnet on Thursday is also going to be a closely followed event. In terms of the major altcoins, the likes of BNB, XRP, ADA, SOL, DOT and DOGE have all remained rangebound.

Data Shows Easing of Inflation Expectations Ahead of US CPI

Respondents to a New York Fed survey of Consumer Inflation expectations said they see headline inflation running at a pace of 6.2% in 2023, substantially lower than the 6.8% median forecast they gave back in June, data released on Monday revealed. That marks the largest one-month drop since the inception of the survey in 2013 and comes amid increasing hopes that the worst of the post-pandemic inflation surge is now in the past.

ISM survey data out last week (both from the Manufacturing and Services sectors) pointed to a substantial decline in the price pressures faced by businesses in July and oil prices are down substantially versus their June highs, feeding into peak inflation hopes. US inflation is a big theme in cryptocurrency markets this week, with Consumer Price Index figures for July set for release on Wednesday, with headline price pressures seen easing to 0.2% MoM and 8.7% YoY. Evidence of easing price pressures could support crypto prices if it calms worries about excessive Fed tightening this year and next.

Pre-Merge Anticipation Behind Recent ETH Outperformance, JP Morgan Analysts Argue

Anticipation ahead of Ethereum’s so-called Merge that will see it transition its consensus mechanism from the energy-intensive Proof-of-Work to Proof-of-Stake in September (if all goes to plan) has been a key driver of ETH’s outperformance in July and has given broader cryptocurrency markets a boost, argued JP Morgan analyst Ken Worthington in a report this week.

“Given DeFi tends to be built on Ethereum, the amelioration of earlier concerns on DeFi together with the better reports about the Ethereum Merge are likely driving the particularly strong price appreciation of ETH relative to bitcoin,” Worthington argued. ETH rallied 56% in July and is already up a further 6% in August, whilst Bitcoin rose a more tentative 17% last month and is up around 2.5% this month.

Ethereum developers will implement a final major test run of the “Merge” on the Goerli testnet this week. Success would open the door to the mainnet merge to go ahead as planned in mid-September and could deliver a sizeable boost to ETH sentiment in the short term.

Galaxy Digital Loses $554.7M in Q2

Galaxy Digital, a crypto-focused financial services provider, just reported its Q2 2022 earnings. The company lost $554.7 million last quarter, which it said was mainly due to this year’s cryptocurrency market downturn, which affected the firm’s investments. Q2’s loss was nearly triple the firm’s loss in Q2 2021. Analysts said that the results weren’t as bad as expected and that much of the losses reported are “unrealized”, meaning the firm could quickly recover ground as cryptocurrency markets recover.

CEO Michael Novogratz said in the post-earnings release call with investors that “I don’t feel nearly as bad as I thought I would, and I hope it’s the worst quarter this firm ever has”. Novogratz added that Galaxy is taking a “really serious look” at its costs and spending. “While the crypto landscape is less certain than it was, my confidence of where it’s going in the medium-term hasn’t waned a bit,” Novogratz stated.

US Regulators Target Crypto Transaction Anonymity Service Tornado Cash

The US Treasury Department blacklisted Tornado Cash on Monday, banning all US citizens from using the decentralized crypto-mixing service. The Office of Foreign Asset Control (OFAC), which is tasked with the prevention of sanctions violations, added Tornado Cash to its Specially Designated Nationals list. Any American who now uses the service may face criminal penalties.

Tornado Cash is a protocol designed to protect crypto user anonymity by hiding the origin and destination addresses of transactions on the blockchain. To achieve this, it mixes users’ coins. US officials claim that Tornado Cash has now been used to launder over $7 billion, including $455 million stolen by North Korean hacking group Lazarus.

Crypto Winter: Hodlnaut Freezes Withdrawals Amid “Difficult Market Conditions”

Singapore-based crypto lending/borrowing platform Hodlnaught has frozen withdrawals and token swaps on its platform due to “difficult market conditions”, joining ranks with a host of competitors including now-bankrupt Celsius Network and Voyager Digital. Hodlnaught said it had no exposure to now collapsed crypto hedge fund Three Arrows Capital.

According to the company’s LinkedIn, it has more than $500 million under management. The bounce in cryptocurrency markets since mid-July has seen chatter about the ongoing crypto winter slow in recent weeks. But major cryptocurrencies like Bitcoin and Ethereum are still trading over 60% down from their November 2021 record highs.