After the latest big sale, the value of the Bitcoin and altcoin market is now under $1 trillion. That means billions of dollars have disappeared in the past few days. Messari senior research analyst Tom Dunleavy assesses the macro environment. He also shares his views on the future of Bitcoin with the leading altcoin.
“Celsius sent the event straight down the Bitcoin and altcoin market”
“We had a perfect storm of really bad information for crypto,” says Tom Dunleavy. “We had the Terra LUNA, which landed us pretty sharply against the wider, challenging macro backdrop,” Dunleavy said. Then on Friday, we got some surprisingly high inflation data. And then Celsius decided to freeze withdrawals,” he explains.
High inflation is bad enough for crypto already. But now there are fears that Celsius could potentially go bankrupt. “This sent prices straight down,” Dunleavy explains. The big concern is that Celsius needs to liquidate or sell the assets at a discount. “This directly affects the assets they can hold,” Dunleavy says.
Now all eyes are on the Fed
Meanwhile, all eyes are on the Fed’s interest rate decision on Wednesday. The CME Fed Watch tool now forecasts a 75 basis point gain of 93.2% on Wednesday. It also predicts a 75 basis point increase chance of 89.1% in July. A few days ago, markets were confident that a 50 basis point increase was as high as the Fed could go.
However, according to Dunleavy, larger rate hikes are likely to have a surprising effect on crypto prices. “Any news that inflation is under control by the Fed or market sentiment will do wonders for risk assets,” Dunleavy said. An increase of 75 basis points would be positive. “Any indication that inflation is starting to cool will be positive for risk assets, stocks and crypto.”
The only thing to watch: Bitcoin’s performance against altcoin projects
As you can follow on Kriptokoin.com, Bitcoin declined to $20.170 during the day. And the leading altcoin Ethereum has dropped 39% over the past seven days, reaching the $1,000 mark. Given how much prices have dropped, Dunleavy says, “Many leverages are already out of the system, but there’s always the risk that another company like Celsius will get caught up in it and trigger a new wave of selling.” Dunleavy makes the following statement:
Everyone has heard of MicroStrategy CEO Michael Saylor’s Bitcoin position. The margin completion price is where we are now. I would pay attention to Saylor and Celsius status. However, most of the leverage has been drained at this point unless we actually get one of the liquidation candles sending us 20%, 30% or 40% lower.
Messari’s analyst adds that the only thing to watch is Bitcoin’s performance against altcoin projects. Dunleavy said, “If you look at Bitcoin prices during this sell-off in the last 24 to 48 hours, Bitcoin is leading instead of atypical altcoins. And that tells me there are funds selling Bitcoin to clean up the leverage on their books,” he says.
What does the current situation mean for Bitcoin and Ethereum?
Inflation is unlikely to drop until at least October. September PCE inflation pressure will likely be the first sign that could point to some softness in the numbers. Dunleavy made a statement on the sidelines of Consensus 2022, held in Austin from June 9-12. For markets, this meant aggressive rate hikes from the Fed until then, Dunleavy said. Also, Dunleavy explained:
What this means for Bitcoin and Ethereum is range-bound trading until softer inflation is reached. That’s because the Fed has raised interest rates, stopped buying assets, and dragged their balance sheets down. All this is not good for risky assets. Not good for crypto market liquidity.
But crypto’s close relationship with the S&P 500 and Nasdaq won’t last forever. The divergence is potentially not that far off. Especially for the leading altcoin Ethereum. What separates stocks and crypto? Also, what moves Bitcoin and Ethereum away from the stock relationship? Dunleavy gives the answer to these questions:
It is one of two things. Either Bitcoin moves to be a complete store of value. Or Ethereum becomes such a world computer entity.
What will PoS do for the leading altcoin?
Currently, Bitcoin and Ethereum are tarding on many different narratives that need to solidify into a single narrative. According to Dunleavy, this decoupling for Ethereum could come with Consolidation, which will switch from the Proof-of-Work (PoW) protocol to the more energy-efficient Proof-of-Stake (PoS) protocol. Dunleavy makes the following assessment:
With the PoS protocol, miners are no longer needed. Instead, people will stake their money to check for new transactions and add them to the Blockchain. This will potentially consume 99% less energy than PoW.
Dunleavy continues his explanation as follows. “With PoS, you receive key rewards from the network with a certain amount of ETH per block. You get the value extracted by the miner. This is also a kind of order operation in the block. And then you get transaction fee income. Some of it was burned and some allocated to validators.”
“Leading altcoin Ethereum has more potential than Bitcoin”
Dunleavy says the return on holding or staking Ethereum alone should be between 8% and 12% after Consolidation. Dunleavy said, “If you think of Ethereum as a kind of semi-bond, the 8-12% return is important. Switching from miners to stakers reduces energy consumption. So it’s not just a bond. It is also a green vineyard. Coming from a former corporate consultant, ESG is now front and center. These two things alone will make it extremely attractive to investors. It will potentially increase demand,” he says.
This is why Dunleavy thinks Ethereum is overtaking Bitcoin for the rest of this year and for years to come. Dunleavy explains his views as follows:
Bitcoin does some things very well. A very good store of value. It has more history than Ethereum. I see bitcoin as gold 2.0. But I personally don’t understand the use case of using Bitcoin.
Dunleavy looks through the lens of market values. And he predicts that Bitcoin will eventually reach a market cap of around $12.3 trillion in gold. But the potential for the leading altcoin is much higher, according to Dunleavy. Dunleavy has this to say on the subject:
With Ethereum as the world’s computer, the actual market cap is orders of magnitude higher than that of Bitcoin. With Ethereum, people are bringing analogy to the internet. Because when the internet first came out, we didn’t know what it was. Ethereum is one such thing.
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