Ether is not the only catalyst for crypto chaos. Watch Bitcoin for CPI data.
Bitcoin
and other cryptocurrencies pared gains on Wednesday after a big rally. But between a critical upgrade to the Ethereum blockchain network and looming influential macroeconomic data, it could be a chaotic day for crypto.
The price of Bitcoin is down less than 1% over the past 24 hours, hovering around $30,000. The biggest digital asset recently surged past the psychologically important price level, briefly topping $30,500 on Tuesday to reach its highest point since last June, when crypto sales accelerated into a brutal bear market. Bitcoin has jumped around 80% so far in 2023, and with the crypto reaching $30,000 again, that has spurred demand for another bull market. But prices have yet to solidify the gains yet.
“Attempts by the bulls to build a sustained rally were not supported by the market,” said Alex Kuptsikevich, an analyst at broker FxPro, noting that traders appeared to have taken profits from the rise in Bitcoin prices.
Despite the price action in Bitcoin, crypto traders were mostly focused on Ether, the second largest digital asset and the token that underpins the Ethereum blockchain network. An overhaul of Ethereum – the Shanghai Upgrade – should be completed later on Wednesday, marking the biggest change to the ecosystem since last year’s “Merge”.
In the merger, Ethereum was transformed from an energy-intensive Bitcoin-style “proof-of-work” system that awarded tokens to cryptominers who used computers to solve increasingly complex puzzles into “proof-of-stake.” Under proof of stake, participating owners of Ether unlock their tokens as collateral while validating transactions and securing the network, earning interest in the process.
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The Shanghai upgrade will allow these tokens to be withdrawn, raising the possibility of selling pressure as some investors extract Ether and sell it. But the Shanghai upgrade, which will make staking easier, is also expected to make trading more popular, which should support prices.
“The Shanghai upgrade may unlock some volatility in the Ether price, but ultimately it is unlikely to move the dial away from the increasingly bullish sentiment among investors,” said Katie Evans, a decentralized finance expert at Swarm, a blockchain platform with focus on trade infrastructure. “We are likely to see some volatility over the next few days and weeks … but this will pale in comparison to broader market movements that remain sensitive to macroeconomic news.”
Indeed, digital assets remain highly sensitive to the macro outlook and in particular the path of monetary policy from the Federal Reserve, which has dramatically tightened financial conditions in an effort to curb decades of high inflation. A series of rate hikes by the Fed over the past year has been a major headwind for both crypto and stocks, dampening demand for risk-sensitive assets and seeing Bitcoin trade in line with
Dow Jones Industrial Average
and
S&P 500.
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The crypto rally so far this year has been driven by expectations that the Fed will soon become more accommodative, potentially pausing the pace of rate hikes in early May and even possibly cutting rates later in 2023 – moves that should support Bitcoin .
Inflation data that will arrive on Wednesday in the form of the consumer price index (CPI) may advance the narrative ahead of the meeting on 2-3. May in the Federal Open Market Committee, the Fed’s policy-setting group. The trading session will also see the release of the meeting minutes from the latest FOMC decision.
“The stage is set for a volatile Wednesday as Shanghai, CPI and FOMC minutes await,” said Vetle Lunde, analyst at crypto research group K33.
Ether
prices followed Bitcoin lower, falling 2.5% to below $1,875. Smaller cryptos or altcoins were also weaker, too
Cardano
and
Polygon
each misses 3%. Memecoins were unspared, med
Dogecoin
down 3% and
Shiba Inu
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reduction 2%.
Write to Jack Denton at [email protected]
