Blockchain News

Chung's Weekly Digest (8/31)

The U.S. Federal Reserve’s desire to bring inflation down to 2% is bringing jitters back to the crypto market, while the world economy hangs by a thread.

Buying Appetite Abates

The price of Bitcoin ($BTC) hovers gingerly at around $20,000 as the bears are taking a firmer grip on the crypto market while participants exit on fears of a further decline.

Bitcoin will likely consolidate further before the next upswing.

The bear flag that formed did not result in a massive dip but the warning signs are far from over. If the crypto market falls below the $1 trillion market cap, more downside is expected. The sentiment in the crypto market is weak as the U.S. Federal Reserve (Fed) is still struggling with inflation and there is also a lack of fresh liquidity to spur the market.

Jerome Powell’s remark last Friday is a cause for concern as the Fed attempts to forcefully balance demand and supply through interest rate hikes. Powell in his speech said:

“Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.”

The Fed is sounding the siren that it will not pivot from its current hawkish stance anytime soon.

Most long-term holders are at a loss as the bear market continues.

There are a few narratives that investors should look out for. First, compared to previous bear markets, the crypto economy is now more mature and better suited for institutional investments. It is still in an early stage for institutional investment, making every capitulation event an opportunity to “buy the dip.” Second, various jurisdictions are introducing crypto regulatory frameworks that grant legitimacy to crypto assets and allow a freer flow of liquidity from traditional platforms into the crypto ecosystem.

On the other hand, the global economy is hanging by a thread. Rising inflationary pressure on a fragile post-pandemic global economy can result in a recession if not effectively handled. Risk assets will be the first to take a hit. China, the second-largest global economy, is also facing a drastic economic slowdown. Consumer confidence fell as fears of China's rigid “Zero Covid” approach with local lockdowns threatens to stagnate its domestic economy.

Amidst these uncertainties, investors may not be prepared to be exposed to risk assets.

Weekly Recap

Market Sentiment

Crypto’s rally in the last few weeks fizzled on two main grounds. First, $BTC failed to break past the crucial $25K mark. Secondly, Jerome Powell’s speech last Friday doubled down on the Fed’s effort to bring down inflation.

Bitcoin must not fall under $19K. If that support fails to hold, the likelihood that the lows recorded in June will be breached is high.

Grayscale Bitcoin Trust (GBTC) is trading at an all-time low of 33.3% discount to the Bitcoin spot

A discount or premium on the GBTC is a good indicator of the overall market sentiment toward Bitcoin. Retail investors remain averse to risk assets. The crypto market will be illiquid and recovery, if any, will be slow and gradual.

Coins to Watch

  • Gala ($GALA) - Gala Games is the leading pioneer in Blockchain games and Web3 entertainment. $GALA is an ERC-20 token that incentivizes the players and secures the platform.
  • Players are awarded digital assets for their in-game performance and this allows for players to take ownership of the items earned during gameplay.
  • Rewards are in the form of their own native token and Non-Fungible Tokens (NFTs). $GALA is the medium of exchange in its own ecosystem.
    • $GALA is 93.9% down from its all-time high of $0.82. There is a good risk/reward ratio for $GALA token holders once the market recovers.
    • Polygon ($MATIC) - It is the most widely used token on the Ethereum ($ETH) network as a layer-two solution.
    • GameFi, NFTs, and Decentralized Finance (DeFi) are using the Polygon network as their scaling solution.
    • Projects will still be built on the Ethereum network because of its high level of decentralization and security. Side chains such as the Polygon network allow projects to operate seamlessly without high gas fees whilst enjoying the benefits of the Ethereum network.
    • $MATIC has defended its price quite well during the current bear cycle because of its utility.
  • Avalanche ($AVAX) - A promising layer-one solution that is scalable.
  • The recent rumor that appeared in Crypto Leaks on Ava Lab, the company that develops and promotes the Avalanche blockchain tanked the crypto asset’s price to $18.
  • The rumor is unlikely to be true and a quick recovery is expected. Buying the dip on unfounded rumors on a fundamentally sound project with a thriving ecosystem is a plausible way to make quick gains.

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