3 min

Digest #4

Merge week arrives amid high volatility and mixed opinions


In this Weekly Digest, we look at the reasons behind the broad market sell-off and examine the ethereum merge in context of the many mixed opinions around its potential for success. Finally, we take a look onchain to see what the markets may have in store for us in the weeks ahead as volatility trends higher.

What's in the news?

Negative CPI data pummels the markets

In what has become an increasingly topsy-turvy and volatile market, bitcoin’s September gains were all but erased upon the release of inflation data on September 13. The BLS’s CPI print massively spooked the markets, with both risk-on and risk-off assets taking a hammering.

The sell-off saw the biggest single drop in equities since June 2020, with the S&P500 and NASDAQ selling off 4.3% and 5.1% respectively on the day, and even “safe haven” asset gold saw a 1.5% drop. But the damage was greatest in crypto, with bitcoin dropping 6% in four hours en route to shedding 12% on the day and again briefly breaching the $20K level to the downside.


The reason for the sell-off? The US CPI data missed its 8.1% consensus forecast for August, which instead came in at 8.3%. Although only a near miss, it at once undermined the Fed’s “commitment to fighting inflation” narrative, made talk of a 2% inflation target by 2023 seem unrealistic, and increased the probability of a larger rate hike in the next Fed meeting on September 21.

The merge is here, but the jury is still out on its success

The week of the ethereum merge finally arrived and the anticipation reached fever pitch, with even the likes of CNBC, Bloomberg, and other mainstream outlets putting out a lot of coverage on their takes on how investors should position themselves for it.

The narrative is split on the outcomes of the merge in the weeks ahead. Those bullish on the merge highlight the 99% cut in power consumption, the benefits of the deflationary tokenomics, and how improved programmability will allow ethereum to reach its potential, while the more pessimistic have pointed out the lack of guarantees around lower gas fees, faster transaction times, and improved network availability.


Regardless of one’s view, there’s no doubt the merge, dubbed the “biggest event in crypto since the first BTC was mined” will have major implications with respect to institutional investment, developer interest in new applications built on ethereum, as well as providing an important benchmark on energy consumption for the crypto sector as a whole.

What does the onchain data say?

CPI print unleashed wave of large outflows

Looking at the onchain analytics we can see that there was a noticeable uptick in whale outflows upon the release of the CPI data compared to the previous day. The steady ramp-up of outflows on September 12 – 13 resulted in a sharp rejection of the price at $22,781 (which also perfectly aligned with the fib 61.8% retracement) and included a 31,000 BTC transaction valued at $964.3 million which accelerated the downdraft. It is no surprise that this sharp sell-off caused more than $110 million in liquidations in a single hour across crypto derivatives exchanges.


At the same time, the sell-off was also accompanied by buying as was the case during the last correction. On the large wallet inflows chart we can see that 78,800 BTC were moved at a price of $20,163, and these large purchases will act to strengthen bitcoin’s $19 – $20K support zone in the near term.


Realised price once again acting as resistance

The realised price provides a measure of the price that all current unspent bitcoins were purchased for and has proven a very reliable macro bottom indicators. In previous cycles, the costs basis of total bitcoin supply moving below the market price has generally been part of the bottoming process and the chart below shows that realised price often acts as resistance, where the failure of the price to trend above it results in a prolonging of the consolidation phase. The rejection at $22,781 has once again pushed the price below realised price which suggests that we are headed for more consolidation ahead.



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And the people one meets at the top aren’t necessarily more special than those one meets at the bottom or in between.


Every time you confront something painful, you are at a potentially important juncture in your life—you have the opportunity to choose healthy and painful truth or unhealthy but comfortable delusion.


Every time you confront something painful, you are at a potentially important juncture in your life—you have the opportunity to choose healthy and painful truth or unhealthy but comfortable delusion.

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