As Bitcoin regained the $27,000 mark for the first time in over two weeks, the token’s dominance index has crossed 50%. All eyes are now on the US Federal Reserve’s interest rate decision this afternoon, although there is almost consensus on the decision to be made. Once again, it is Jerome Powell’s words on future directions that risk moving the markets.

Bitcoin’s market dominance has reached 50.2%, nearing its peak of 52% witnessed last June, an increase attributed, among others, to the anticipation of a Bitcoin ETF and the latest regulatory developments. Despite its price stability, Bitcoin seems to be experiencing potentially stronger buying pressure compared to altcoins, according to Markus Thielen from Matrixport. Current risks in the altcoin market, including token sales by the bankrupt exchange FTX and a decline in Ethereum protocol revenues, could lead to their depreciation. Thielen emphasizes that recent announcements around ETFs have not particularly benefited altcoins. Moreover, regulatory changes proposed by the New York Department of Financial Services could favor Bitcoin, viewed as a safe crypto asset, thereby encouraging more investors to turn to this flagship cryptocurrency.

The FED’s interest rate decision in the US will be revealed at 2:30 PM today. Most expectations agree on the maintenance of the current rates, a likelihood estimated at 99% at the time of the report according to CME Group’s FedWatch tool. Financial commentator Tedtalksmacro noted that inflation is on the right track, suggesting a possible acknowledgment of this trend by the Fed at this meeting. Despite anticipations of stability, experts predict short-term volatility following this event. Analysis of the BTC/USD order book on Binance, the largest global exchange, indicates relatively low liquidity around the spot price. Material Indicators foresees “spicy” BTC price action following Fed chairman Jerome Powell’s speech. The market displays substantial offers mainly around $25,000 and $26,650, with significant resistance noted at $27,450.

If the predicted maintenance of the rates is confirmed, it could be positive for Bitcoin, whose price has historically correlated with central bank policies and risk markets. Jeremy Siegel, finance professor at Wharton, believes the Fed should not increase rates again. He argues that further increases could render many individuals unemployed without significantly reducing inflation. Based on the current strength of the economy, Siegel anticipates a robust stock market in the coming months. However, it is undeniable that Bitcoin has been reducing its correlation with traditional markets in recent months, making the market’s reaction in this context all the more interesting.

The US Federal Reserve recently announced that it had incurred losses of 100 billion dollars in 2023, a situation expected to worsen. These losses are mainly attributed to interest payments on the Fed’s debt exceeding revenues from its operations and holdings. Despite the losses, the Fed sees no immediate need to cover them, considering these losses as “deferred assets.” Historically profitable, the Fed is in a delicate position but maintains that it can still achieve its policy objectives. Experts criticize the substantial interest rate hikes since March 2022 and expect the losses to persist, also influenced by the expansion measures taken to avoid a recession between 2020 and 2021. The current US debt of 33 trillion dollars is seen as unsustainable, leading to debates on the necessity of previous rate increases to control inflation. Faced with this tense economic situation, the market is filled with uncertainties, especially regarding safe-haven investments. The real estate market is showing signs of weakness, and stocks do not seem very attractive either due to persistent inflationary pressure. In this context, although cryptocurrencies, including Bitcoin, are not yet seen as a viable option to hedge against inflation, the dynamics might change.

Citigroup has launched a tokenization service to expand its digital asset offerings for its institutional clients. The service, named “Citi Token Services,” transforms client deposits into digital tokens, thus facilitating instant global transactions. It operates on a private blockchain managed by the bank, sparing clients the need to create their own digital wallet. Shahmir Khaliq, head of the company’s services division, highlights that this development is part of the bank’s ambition to offer next-generation transactional banking services, available in real-time.

The initiative aims to optimize cross-border payments, often slowed down by differences in banking and governmental systems worldwide. It also applies to the trade sector, especially in the shipping industry which heavily relies on bank letters of credit, a process that can be significantly accelerated through the use of automated smart contracts. Citigroup has already conducted successful tests in collaboration with a canal authority and A.P. Moller-Maersk A/S, a giant in maritime transport. This innovative service adds to other sector initiatives exploring the benefits of tokenized deposits, with JPMorgan Chase & Co. also developing a similar project, though waiting for regulatory approval.

The launch of Ethereum’s Holesky testnet, scheduled to celebrate the first anniversary of the historic “Merge” update, encountered a major technical hurdle due to a misconfiguration in the network’s genesis files, leading to a launch delay of about two weeks. This setback, quite rare in Ethereum’s journey, interrupted a series of successful updates, including the notable “Merge” and “Shapella,” while managing rapid growth in its layer-2 blockchain ecosystem. Despite this incident, the development team remains optimistic, planning to resolve the issue and relaunch Holesky, a network designed to address Ethereum’s scaling issues by allowing more validators to join the network compared to the mainnet. Parithosh Jayanthi, a devops engineer at the Ethereum Foundation, assures that this delay will not impact the schedule for Ethereum’s next hard fork, named Dencun, which aims to integrate a technical feature to enhance blockchain scalability. Meanwhile, developers can still use the Goerli testnet, which will remain operational until early 2024.

The launch of Ethereum’s Holesky testnet, which was scheduled to celebrate the first anniversary of the historic “Merge” update, encountered a major technical hurdle due to a misconfiguration in the network’s genesis files, leading to a launch delay of about two weeks. This setback, quite rare in Ethereum’s journey, interrupted a series of successful updates, including the notable “Merge” and “Shapella,” while managing rapid growth in its layer-2 blockchain ecosystem. Despite this incident, the development team remains optimistic, planning to resolve the issue and relaunch Holesky, a network designed to address Ethereum’s scaling issues by allowing more validators to join the network compared to the mainnet. Parithosh Jayanthi, a devops engineer at the Ethereum Foundation, assures that this delay will not impact the schedule for Ethereum’s next hard fork, named Dencun, which aims to integrate a technical feature to enhance blockchain scalability. Meanwhile, developers can still use the Goerli testnet, which will remain operational until early 2024.

Sam Bankman-Fried, still behind bars, seems to be at the self-pity stage. The former CEO of FTX feels “ruined” and “hated” following the company’s collapse. According to a 250-page manuscript written during his house arrest in December and recently leaked by journalist and YouTuber Tiffany Fong to the New York Times, Bankman-Fried, who is currently in pretrial detention awaiting his trial next month, believes there is probably nothing he can do to have a “net positive impact” on his life. In his writings, Bankman-Fried shifts part of the blame onto some of his colleagues, including his ex-girlfriend and former CEO of Alameda Research, Caroline Ellison, whom he accuses of avoiding addressing risk management issues until it was too late. He claims to have belatedly discovered that Alameda was using client funds through an account named “fiat@” after overhearing a conversation between his employees in spring 2022. This sense of defeat and regret comes across strongly in his notes, where he admits to wearing an electronic bracelet and sees himself as one of the most hated people in the world.

Bitcoin inactive addresses reach historical highs over one, three, and five-year periods as BTC outflows from exchanges continue. On-chain data reveals that Bitcoin holders are accumulating BTC, with holdings on exchanges being at their lowest in a year and the percentage of inactive BTC supply reaching record levels. These figures are confirmed by CoinMarketCap analyses, which show that 69% of addresses, or 36.8 million, have held BTC for over a year. CryptoQuant charts also show a steady decline in Bitcoin outflows from exchanges since July 2021, with just over 2 million BTC remaining on exchanges. It goes without saying that this trend tends to point towards an ever-thinner supply, which could stimulate a strong surge on any catalyst increasing demand for the crypto asset.

Technically speaking, it has been encouraging to bounce back in the $25,000 area, which allows hopes for a “double bottom” following the same rebound in this area in mid-June. The rebound then had indeed been pronounced, reaching $31,500. To retest this resistance, bitcoin will first have to close clearly above its 50-day average. It closed exactly on this yesterday. The 200-day moving average is pointing to $27,600. Passing these two resistances could allow for a real bullish push. Will the answer come as early as this afternoon?

Rivemont Investments, manager of the Rivemont Crypto Fund.

The presented information is as of Septmber 20th, 2023, unless otherwise indicated and is provided for information purposes only. The information comes from sources that we believe are reliable, but not guaranteed. This statement does not provide financial, legal or tax advice. Rivemont Investments are not responsible for any errors or omissions in the information or for any loss or damage suffered.