Market deep dive: Hike by the Fed of 0.75%

On Wednesday evening, the Fed decided to hike rates by 0.75% to 2.5%. Conversely to the large increase, the press conference was rather dovish, and pointed to an uncertain future. In the past, Mr Powell usually gave some guidance on the upcoming meeting. This time around, he will keep people guessing about the September meeting. The Fed Chair stated that forthcoming hikes may begin to slow, but was also explicit when saying that if larger than needed rate hikes are necessary, warranted by data, the Fed would not hesitate to do so. Markets reacted extraordinarily well to the meeting. The Nasdaq posted its best one-day gain (+4%) since November 2020. BTC and ETH finished the day with +8% and +13% respectively. 

The largest EthCC event of the year took place in Paris last week. Most notably, Vitalik spiced up the hype surrounding the Ethereum Merge by unveiling the next steps in the roadmap for the Ethereum network. By the end of these upgrades, the network aims to process 100,000 transactions per second. 

The roadmap consists of five stages:
1. “The Merge” of the current mainnet with the new Proof-of-Stake layer. According to Vitalik, the network’s developments will be 55% complete after the merge.
2. “The Surge” introduces sharding, which should increase the network’s scalability.
3. “The Verge” is an upgrade set to optimise storage and reduce node sizes to assist ETH in becoming more scalable.
4. “The Purge” eliminates historical data and reduces hard drive space needed for validators, reducing network congestion.
5. “The Splurge” contains multiple smaller upgrades to ensure the network runs smoothly following the previous upgrades. 

Find a twitter thread breakdown along with the diagram presented by Vitalik here, and watch the full presentation here. 

It is exciting to see that there is a long-term plan for Ethereum, beyond the merge. Furthermore, data suggests that ETH investors are optimistic on the merge finally occurring and the price surging as a result. On July 21st, the ETH balance reached a four-year low on centralised exchanges, according to Glassnode. Deribit currently shows open ETH contracts exceeding 3.7 million, an all-time high, with a put/call ratio of 0.32. 

Lastly, Tether released a statement on Thursday titled “Tether Combats False Information to Preserve the Reputation of the Cryptocurrency Ecosystem”, where they want to reassure the crypto community that they do not hold any Chinese commercial paper in their reserves. Additionally, they want to reduce total commercial paper exposure from a current $3.7bn to $200m by the end of August 2022, and zero by the end of October/early November. As per usual, we take news from Tether with a grain of salt, as they have been caught misleading the public before. Regardless of their efforts trying to make their USDT backing stronger, the USDT market cap has decreased by 20% while the USDC market cap increased by 13% since May 10. 

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