Dispatch #97: How Real Is the Rally?

Jul 22, 2022•3 min read

In this patch of your weekly Dispatch:

  • The ETH Merge narrative
  • The SEC upsets everyone
  • NFT buying goes up

The Big Idea

Can the Crypto Rally Stick?

Last weekend brought some serious green back to the beleaguered crypto markets. The rally was seemingly led by Ethereum, which saw renewed excitement after an ETH developer suggested that the much-anticipated Merge was on track for September.

The Merge is the event through which Ethereum will transition from Proof of Work to Proof of Stake. For many in the ETH community (currently merrily gathered in Paris, including part of the Nexo team), it represents one of the most seminal moments in the history of the crypto industry. It could also have implications for the political discourse around crypto and energy consumption.

But over the last week, it’s served as some serious narrative juice for a crypto scene hungry for any good news. The question is: can the rally be sustained?

The industry of course still faces significant macro headwinds. Inflation remains persistent. Europe – and the world at large – are in the midst of an energy crisis. A recession in the US seems imminent.

But even if a Merge-driven rally is just a temporary reprieve, it’s a great reminder that the best thing the crypto industry can do in any type of market is to just keep building. 💪🏽

The Latest In…

Bitcoin’s Treasury Narrative

One of the big drivers during the early-2021 rally was Tesla’s announcement of a big purchase of Bitcoin. This week, Tesla announced that they sold approximately 75% of it in the second quarter of 2022 for around $936M at a slight loss. While BTC initially sank on the news, Elon said it was about liquidity more than the asset. “We are certainly open to increasing our Bitcoin holdings in the future so this should not be taken as some verdict on Bitcoin. It’s just that we were concerned about overall liquidity for the company, given COVID shutdowns in China. And we have not sold any of our Dogecoin.”

The Latest In…

SEC vs the CFTC

Towards the end of this week, the SEC charged a former Coinbase employee with insider trading. Now, all on its own, that would be a major deal, and a major topic of conversation. But there was a broader implication. As part of the action, the SEC identified nine crypto assets as securities. Unfortunately, they did so without describing why.

This was an immediate source of consternation for the industry, but also for the Commodities Future Trade Commission. In an extremely unusual act of inter-regulator strife, the CFTC wrote a biting press release, affirming that “(r)egulatory clarity comes from being out in the open, not in the dark.” This should make it clear that the US regulatory conversation is coming to a head.

The Latest In…

Global Regulations

It wasn’t just the US that saw some interesting engagement around crypto from global leaders, including:

  • Paraguay’s legislature approved a crypto taxation and regulatory framework that would be a boon to Bitcoin mining in the country.
  • In Russia, Putin signed a ban on crypto-based payments, which is actually an improvement from the full ban the Bank of Russia had requested.
  • India’s Finance Minister has reiterated the Reserve Bank of India’s stance that crypto should be banned.
  • South Korea has postponed the implementation of a new 20% tax on crypto until 2025.

The Week’s Most Interesting Data Story

NFT Discount Shopping

Not all price declines are bad things. June was the worst month for Bitcoin and crypto in history from a price standpoint, but it appears there was a bright side. Ethereum-based NFTs are priced in ETH. It appears that when the price of ETH went down, at least part of the community saw it as a chance to scoop some NFTs on the cheap. This is a good demonstration of how passionate the NFT community is, and how – even after a slog of down markets for the past few months – there is still dry powder waiting to be deployed for the right opportunities.

Hot Topics

What the Community Is Discussing

But seriously though.

DAOs not having quite as good a bear market as the ETH merge narrative.

The man has a point.

What to Watch for Next Week:

  • Who will the SEC enrage next?
  • Can we sustain this week’s rally?
  • What will the Fed do at the FOMC meeting?