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Summary 

• Bear market rally loses steam as macro expectations worsen following Powell’s stern Jackson Hole speech
• Ethereum Merge gets an official date (~ September 14) but is soured by centralization/censorship concerns stemming from U.S. Treasury’s sanctions against Tornado Cash
• An energy crisis continues in Europe and concerns surrounding China’s economy have some concerned of a global recession
• Ethereum Merge Set for Sept. 14
• BlackRock, the world’s largest asset management company, partners with Coinbase to help onboard institutional investors looking to trade BTC
• Monero undergoes successful upgrade
• A single developer admits he was solely responsible for up to 70% of Solana’s DeFi TVL by inorganically spoofing the metric
• A new Senate bill proposed by the C.F.T.C. aims to regulate BTC and ETH as commodities 
• Uniswap looks to trial the ‘Fee Switch’ in selective pools soon
• SAFE airdrop for Gnosis users is safe
• Arbitrum Nitro goes live. Nitro increases Arbitrum’s T.P.S. while lowering transaction fees. Arbitrum daily transactions have increased leading into the Nitro launch and could very well continue with the restart of the Odyssey—and eventual—ARBI token release

Image: Comparison between Abritrum and Optimism daily transactions, as of August 31, 2022. Source: Blockworks Research

Macro

Looking Back

Following June’s 40-year-high print of 9.1%, July CPI fell to 8.5%. While U.S. year-over-year (YoY) CPI remains over 8%, the month-over-month (MoM) numbers remained flat. This is encouraging, indicating that CPI, at least for one month, has stopped increasing. 

Image: A Step In The Right Direction: Month-over-month percent change in CPI for all urban consumers, seasonally adjusted. Source: Delphi Digital.

This was largely driven by oil prices contracting 20-30% from the highs in the $120 range. As oil remains in the ~$90 area and many commodity prices have seen similar pullbacks from their highs, many forecast CPI to trend down into the future.

Image: The Evolution of the U.S. Consumer Price Index as based on monthly scenarios. Source: Macrobond.

However, even if every month for the rest of the year held steady at 0% MoM CPI (a big ‘if’), YoY CPI would still be ~5.5%. That’s far higher than what the Fed’s ultimately aiming for (2%) and, therefore, may be forced into “accelerating” the process. 

This is exactly the tone Fed Chairman Powell struck at this year’s Jackson Hole meeting in which, in just eight minutes, he emphasized the Fed’s hawkish stance and commitment to keeping rates higher for longer even if that means a weak job market and slowed economic growth. This sent equities and crypto down fast, ending a month-long rally. 

Last week’s jobs data indicated that U.S. job openings increased sharply in July, suggesting strong demand for labor. This gives the Federal Reserve more room to continue aggressive interest rate hikes. As long as the job market is strong, the Fed can continue to tighten monetary policy and drive markets down. 

Looking Ahead

While the U.S. markets slump, Europe faces a far more severe reality. European natural gas prices have surged to nearly unthinkable highs as the worst energy crisis in decades intensified. European prices are more than ten times their norms with northern Europe experiencing the worst of it. In the United Kingdom, people anticipate an 80% increase in energy expenses (on top of 10%+ inflation), while Germany is even worse. 

Image: EU Natural Gas Dutch TTF. Source: Trading Economics

Europe’s energy nightmare stems from Russia reducing the amount of natural gas it’s willing to sell to Europe and years of prioritizing ESG-friendly policies over energy security. Soaring energy costs mean increased inflationary pressures, increased operating costs for critical businesses, and unaffordable heating bills for Europe’s most vulnerable heading into the Fall and Winter months. Eurozone inflation increased to ~9% in August and exceeded U.S. inflation for the first time since 2015. Sustained prices at these levels devastate all aspects of an economy, all but guaranteeing a European recession. 

Image: Comparing Eurozone and U.S. inflation. Source: Kaiko/FRED, CPI/HICP

Two important near-term dates regarding macro data include:

• September 13: CPI release. As discussed, many are anticipating another mild number or decrease 
• September 21: FOMC meeting—the Fed’s last opportunity to physically raise rates. 50-75 bps is currently the consensus, but the Sept. 13th CPI print will ultimately determine the magnitude. This tweet sums it up:

Image: Comparing Eurozone and U.S. inflation. Source: Kaiko/FRED, CPI/HICP

Macro Checklist

Below are a few macro indicators that drive Fed policy and markets in general. Each one has its own effect on risk assets and crypto. 

1. Inflation: Too high. Cooled off for one month (bullish), but remains well above Fed’s 2% CPI target. Next inflation data will be critical.
2. U.S. jobs market: Strong. As explained earlier, this is bad news for markets. A strong jobs market gives the Fed more room to tighten monetary policy before potentially creating a recessionary environment.
3. U.S. Dollar: Strong. The DXY remains on its multi-year uptrend. Recently broke to a new all-time high not seen since 2002. A strong dollar is bad for emerging markets, equities, and risk assets, such as crypto. 

Image: Price comparison between the U.S. Dollar and Bitcoin. Source: Kaiko/Refinitiv.

1. Stock market (SPY): Weak. In a weekly structural downtrend of lower highs and lower lows.
2. Fed signaling: This is subjective, but given Powell’s recent Jackson Hole statements, this is also bearish. Powell stated the Fed is looking to continue to raise interest rates, even it means lower stock prices and a less robust jobs market.

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