First Mover Asia: Cryptos Yo-Yo After Hawkish Rate Hike; Ether’s Price Is Down, Regulators May Soon Be Circling. What’s Next for Post-Merge Ethereum?

Good morning. Here’s what’s happening:

Prices: Cryptocurrency prices climbed and then plunged following the Federal Reserve's latest 75 basis point interest rate hike.

Insights: Four crypto experts weighed in on Ethereum's future post-Merge.

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Crypto Prices Sink During Seesaw Day

By James Rubin

The Fed decreed and crypto markets scrambled, sending assets higher in the initial hours following the U.S. central bank's latest, hefty interest rate hike, and then spiraling.

Bitcoin was recently trading at about $18,500, a more than 2% decline over the past 24 hours, although the largest cryptocurrency by market capitalization dipped well below $18,400 at one point Monday (UTC), its lowest level since early June. A year ago, BTC's price was more than double its current level.

Ether was recently changing hands at roughly $1,250, a roughly 5.5% drop from the previous day. The price of the second largest crypto by market value has been tumbling in the aftermath of last week's Merge, the landmark technological overhaul of the Ethereum network as investors prioritize its potential, longer-term benefits over immediate price impact. Investors will soon be eyeing next year's Ethereum’s “Shanghai” upgrade, which will allow users to withdraw staked ETH.

Other cryptos followed a similar price pattern, rising immediately after the rate announcement before plummeting, with EOS recently off more than 10% and YGG and ADA both down over 4%.

Other assets

Crypto prices tracked major stock indexes, which also seesawed during the day, rising early before plunging post-announcement. The tech-heavy Nasdaq and S&P 500, which has a robust technology component, each dropped 1.7%, while the Dow Jones Industrial Average (DJIA) fell 1.8% as markets chewed over Federal Reserve comments indicating more harsh inflationary medicine to come. The declines did not sweep up exchange giant Coinbase and other crypto-exposed companies, which rose on the day.

The Fed raised interest rates by a robust 75 basis points for a third consecutive time after the most recent price data showed inflation remaining stubbornly high and the economy slowing more gradually than the bank had hoped, including a still torrid job market. The consensus among officials involved in the latest policy decision is for the bank to raise rates a total of 1.25% at its two remaining Federal Open Market Committee (FOMC) meetings this year.

The Fed hopes to lower inflation to 2% from its current, near four-decade high over 8%. "My main message has not changed at all," Fed Chair Jerome Powell said during a press conference, referencing his speech at the Fed's Economic Symposium last month in Jackson Hole, Wyoming. "The FOMC is strongly resolved to bring inflation down to 2% and we will keep at it until the job is done."

The rate increase highlighted a day of concerning events for the global economy. Two-year Treasury yields, which have moved in opposite direction of crypto prices, soared over 4% following the Fed announcement, their highest level in 15 years. And home sales declined for a seventh straight month. With 30-year-fixed mortgage rates already soaring to 6% for the first time in almost 15 years, the drop-off should continue.

Meanwhile, Russian President Vladimir Putin ratcheted up macroeconomic uncertainty, announcing the call-up of 300,000 troops to bolster the country's rapidly faltering invasion of the Ukraine. The unprovoked attack has affected energy prices and global supply chains.

Yet, inflation and monetary policy remained central for most crypto investors and observers of the space. Riyad Carey, a research analyst at crypto data firm Kaiko noted "a sharper price reaction to the CPI release than to the [Ethereum upgrade] Merge."

"I don’t foresee crypto, especially BTC and ETH, bucking the Fed’s influence any time soon," he said.

What's Next for Ethereum Post-Merge?

By Shaurya Malwa

Last week’s Ethereum Merge drew 40,000 viewers to one popular viewing party, but the long-awaited shift to a faster, more environmentally friendly proof-of-work protocol did little to impress many traders.

In a textbook sell-the-news scenario, traders sent ether prices tumbling more than 15% during the past week. The decline has dovetailed with plunging equity markets and rumblings in the Twittersphere about possible centralization of the Ethereum network.

“Lido and Coinbase alone represent just under 45% of total validation,” Paul McCaffrey, crypto strategist at KBW, highlighted in an email to CoinDesk. “Lido leads at 30.1% with ~ 4.16M ETH, followed by Coinbase at 14.5% with >2M ETH.”

Ether’s decline has raised fundamental questions about Ethereum’s future. While optimism runs high about the platform’s potential long-run benefits, some prominent observers also have concerns that the Merge will create new obstacles.

A lure for ESG investors?

McCaffrey said he remained “in the bullish camp” over the medium to long term as more network validators join the network and alleviate such concerns over time.

“The Merge represents a landmark industry event and has the potential to draw ESG investors into the mix who will appreciate the energy efficient angles and the opportunity ETH brings to the masses (especially the unbanked),” he explained.

Others shared the sentiment, saying they viewed the Merge as a long-term indicator of strong fundamentals, despite recent price hiccups.

“The Merge could be more of a longer-term playout in the price as the upgrade is likely to attract more institutions, which could benefit ETH/USD price over a longer term,” Austin Kimm, director of strategy at Choise, said. “Ethereum is still the granddaddy of all blockchains with approximately half of all tokens being created on and using the network.”

A starting test

Elsewhere, Anto Paroian, executive director at the crypto hedge fund ARK36, told CoinDesk that Ethereum’s “big test” had only just begun.

“Although the proof-of-work and the proof-of-stake blockchains have successfully merged, only now would it be possible to discover the full impact of the Merge on the vast ecosystem of apps built on top of the Ethereum blockchain,” Paroian said, referring to the billions of dollars worth of cryptocurrencies locked up on Ethereum-based applications.

“This includes the [decentralized finance] space which is currently valued at around $56 billion. We should all be prepared for strong downside volatility in case of any glitches and previously unforeseen mishaps,” Paroian noted.

Apart from the near-term market and technological impact, some observers say ether is likely to receive legal scrutiny in the coming months due to the rewards that the network awards to users to run nodes, or specialized blockchain software, to process transactions on Ethereum.

“(There’s) the possibility of recognizing ETH as a security token. On the one hand, after the transition to PoS, the coin will have signs of [acting like a] security, such as, for example, the expectation of making a profit. And many financiers say that such an outcome is possible," Serhii Zhdanov, CEO of crypto exchange EXMO, said in a Telegram message.

Zhdanov warned that such an outcome would create a “disaster for ordinary users,” one that could even see “delisting of [tokens] from crypto exchanges” in the worst-case scenario.

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11 a.m. HKT/SGT(3 a.m. UTC): Bank of Japan interest rate decision and monetary policy statement

In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:

Bitcoin Flutters Around $19K Ahead of Fed Decision: Is a Jumbo Rate Hike Priced-In?

Joining "First Mover" to discuss the central bank's policy meeting and his crypto markets outlook was Ben Emons of Global Macro Strategy. Also, the Blockchain Foundation's Cleve Mesidor weighed in on crypto regulation, and Zappos founder and Golden State Warriors co-owner Nick Swinmurn talked about his new NFT-based prediction game, Play Hellebore.

Wall Street Bank CEOs Tell Congress They’re Unlikely to Finance Crypto Miners: The chief executives of Citigroup, Bank of America and Wells Fargo were questioned Wednesday at a congressional hearing.

Crypto-Linked Stocks Rally After Fed Rate Hike: Cryptocurrency-exposed stocks rose along with bitcoin and ether following the Federal Reserve's announcement Wednesday to boost the interest rate 75 basis points.

Kraken’s Jesse Powell to Step Down as CEO of Crypto Exchange: Chief Operating Officer Dave Ripley will take over as CEO.

Amid Market Rout, Crypto Miners Are Still Building: Crypto miners are still developing innovative data centers despite a souring market that has some miners struggling to survive.

Fed Hikes Rates to Highest Since 2007; Bitcoin Slides Toward $19K: This is the third consecutive time that members of the Federal Open Market Committee raised rates by 75 basis points, signaling how serious inflationary pressures have gotten in the U.S. The bitcoin market doesn't like it.