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First Mover Americas: Bitcoin Heads for Best Month Since October as PCE Inflation Surprises

·5 min read
  • Price Point: Bitcoin is on track for its best month since October as a busy week for U.S. economic news ends with a fresh inflation surprise.

  • Market Moves: Ethereum classic (ETC), a cryptocurrency that's been little more than an afterthought since the same-named protocol forked off the Ethereum blockchain in 2016, was one of the best performers in digital-asset markets in July.

  • Chart of The Day: Bitcoin futures premium widens as rally takes off.

This article originally appeared in First Mover, CoinDesk’s daily newsletter putting the latest moves in crypto markets in context. Subscribe to get it in your inbox every day.

Price Point

Bitcoin (BTC) held steady even as fresh U.S. economic data showed the Federal Reserve's preferred measure of inflation rose by more than expected in June.

The core personal consumption price index (core PCE) came in at 0.6% month on month, exceeding estimates for a 0.5% rise and accelerating from May's 0.3% jump. The pace over the past 12 months was 4.8%, compared with expectations for a rate of 4.7%. The employment cost index rose 1.3% in the second quarter, versus the expected 1.2%.

While the data pointed to sticky inflation, the news barely impacted the dollar or U.S. Treasury yields, perhaps because markets remain focused on recession fears and prospects of slower Federal Reserve monetary tightening in coming months.

SPECIAL FEATURE: What is the definition of a recession? And does the U.S. economy meet the test? The discussion has suddenly become a parlor game among analysts and politicians alike. Helene Braun explains. (Spoiler alert: The bitcoin market doesn't really care one way or another.)

Bitcoin traded at $23,550 at 12:45 coordinated universal time (UTC) on Friday, representing a 3% gain on a 24-hour basis.

The cryptocurrency, however, was on track to end a three-month losing streak with at least an 18% gain – the biggest percentage rise since October. The relief could be attributed to speculation that inflation has peaked and the Federal Reserve could opt for slower interest rate hikes in the coming months.

While ether (ETH) fell below $1,700, the native token of Ethereum’s blockchain was still up 57% for the month, the biggest rise since October.

Cardano’s ADA token underperformed as Input Output (IOG), the development lab for the Cardano blockchain, pushed back Vasil, an upgrade designed to increase Cardano's scaling capabilities, by a few weeks. The Vasil upgrade had been scheduled for a June release on testnet release followed by mainnet launch.

Babel withdrawal suspension

In related news, bitcoin holder El Salvador's Finance Minister Alejandro Zelaya said the country's decision to adopt the leading cryptocurrency by market value as legal tender is helping the unbanked population and attracting tourism and investments. The comments come as the country's finances look weak, with a 50% loss on its bitcoin investments ahead of the $800 million sovereign bond due in January 2023.

A report published by The Block, citing a restructuring proposal deck, said the beleaguered Hong Kong-based crypto lender Babel Finance lost $280 million in proprietary trades with customer funds. Babel Finance suspended withdrawals and redemptions, citing market volatility and hired U.S. investment banking firm Houlihan Lokey to help chalk out a restructuring plan. Babel is one of the several crypto companies, suffering from the “crypto contagion” following the collapse of Terra and the crypto hedge fund Three Arrows Capital.

Elsewhere, the Federal Reserve and Federal Deposit Insurance Corp. issued a cease-and-desist statement to crypto lender Voyager, asking to stop making false claims that its customers would have government protections. Spanish banking multinational Santander said it was planning to offer crypto products to its clients in Brazil, a sign of continued appetite for digital assets amid the bear market.

Biggest Gainers

Asset

Ticker

Returns

DACS Sector

Chainlink

LINK

+9.5%

Computing

Gala

GALA

+6.0%

Entertainment

Polygon

MATIC

+4.5%

Smart Contract Platform

Biggest Losers

Asset

Ticker

Returns

DACS Sector

Cosmos

ATOM

−1.1%

Smart Contract Platform

Market Moves

Ethereum classic – No, not THAT Ethereum – boasts powerful performance in July crypto comeback

Chart showing performance of ETC, UNI and MATIC in July. (CoinDesk/TradingView)
Chart showing performance of ETC, UNI and MATIC in July. (CoinDesk/TradingView)

July has brought relief to the crypto market, thanks in part to Ethereum classic (ETC), the supposedly dead coin and not-so-similar clone of Ethereum's ether (ETH) token.

The gains for ETC came as other out-of-favor coins like UNI and MATIC joined the recovery in digital assets with at least $1 billion market value.

ETC has added 184% this month, while scaling system Polygon's MATIC and decentralized exchange Uniswap's UNI have gained 102% and 86% respectively, CoinDesk data shows. Industry leader bitcoin (BTC) added 20% during the month, with ether up 60%. The total crypto market capitalization has rebounded to $1.14 trillion from last month's $762.82 billion low.

The catalyst for ETC's gains has been Ethereum's impending Merge, a planned step to convert the Ethereum network's proof-of-work (PoW) blockchain to a proof-of-stake (PoS) blockchain. Ethereum's Beacon Chain has been running since 2020.

"ETC is being driven by speculation that ETH miners will go to ETC and, potentially, there could be another hard fork benefitting them," Lucas Outumuro, head of research at IntoTheBlock, said.

ETC's July gain is consistent with a history of rallying around the time of major Ethereum upgrades.

Full story here: Ethereum Classic Almost Triples, MATIC and UNI Surge as July Brings Relief to Crypto Market

Chart of the Day

Bitcoin futures premium widens

Chart showing annualized rolling premium in three-month bitcoin futures listed on CME and Binance (Source: Skew)
Chart showing annualized rolling premium in three-month bitcoin futures listed on CME and Binance (Source: Skew)

Bitcoin’s price rise this month has been accompanied by an uptick in the futures premium or the spread between prices in futures and spot markets.

  • The annualized rolling premium in three-month bitcoin futures listed on the Chicago Mercantile Exchange, a proxy for institutional activity, has risen to 4.2% from near zero at the beginning of the month.

  • While premium in three-month bitcoin futures listed on Binance has increased, it remains below that on the CME, a sign sentiment remains cautious on the retail-dominated offshore platforms.

  • Perhaps that's a good sign for the market as retail-driven price rallies seldom have legs.

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