Affected by the release of the US CPI price index in April, Bitcoin fell from US$28,000 to US$26,000 last week, which also included the impact of negative themes such as Bitcoin network congestion and Ethereum being unable to trade for a short period of time. In particular, Ethereum also fell from US$1,900. Weak as low as $1,700, causing more funds to flow out of cryptocurrencies and into stablecoins to wait for the next rising point. The crypto market did not go smoothly last week. In addition to the overall economic impact, even the two most mainstream blocks There are problems in the chain network. This kind of thing rarely happened in the past. The probability is so low that it can be said to be very alarming.
Although the price of Bitcoin is not good, the trend of meme coins created by the BRC-20 gameplay has made miners quite profitable. The craze of creating large amounts of tokens and transfer transactions has created several times the previous transaction volume, which is limited by the blockchain The processing performance limitations of the network have caused the Bitcoin network to encounter unprecedented traffic jams. To complete transactions with priority, you have to pay transfer fees of more than 20 US dollars. The large number of fees has brought huge revenue to mining companies.
However, the problem of cash shortage in mining farms has been occurring for some time. In 2021, mining companies used cheap funds to raise large amounts of cash from banks to expand their mining scale. However, the subsequent interest rate hike in 2022 suddenly turned to tightening, and many Mining companies had to apply for bankruptcy and reorganization, which made banks unwilling to lend money to mining farms. Their cash levels were quite tight. Finally, they encountered a rare rising tide of handling fees, which greatly increased their income. It can be speculated that they got After paying the handling fee in Bitcoin, it will be sold and converted into cash within a short period of time.
Next comes Ethereum. Last week, it suddenly failed to complete transactions for half an hour, which shocked the market. This is the first time since Ethereum switched to the Proof of Stake (PoS) consensus mechanism that blocks cannot be synchronized for a long time. In the past, In the mining era of the Proof of Work (PoW) consensus mechanism, there was almost no downtime except for major bugs, and the current problem maintenance team cannot find the reason. It is initially believed that the client decentralization of Ethereum may be too low. As a result, some nodes experienced problems and were unable to complete block processing. Currently, the two major node operators, Lighthouse and Prsym, occupy 38% of the PoS voting rights.
Although the downtime is not long, since the PoS conversion time is less than a few years, the market is continuing to examine whether PoS can be as safe and stable as PoW. However, now PoS not only constitutes a security due to the excessive concentration of node voting rights, but also It may lead to unstable network transactions. This kind of outage may happen again. I just hope that Ethereum will not follow the footsteps of Solana's outage. Although this time it is just that the transaction block cannot be completed and it is not a shutdown, it is still frustrating. People worry.
Finally, inflation is still the main factor affecting market confidence. Last week, the U.S. Department of Labor announced the latest CPI index. Initially, the market thought that inflation was slowing down. As the market interpreted the data, it felt that something was getting more and more wrong, causing the market to turn downward. , the encryption market cannot help but be affected. Coupled with the above-mentioned Bitcoin traffic jam and Ethereum outage, the cryptocurrency market has turned from stable to weak in just a few days.
A. On May 8, the Bitcoin network was blocked and Binance suspended Bitcoin withdrawals.
Last night, the Bitcoin network was temporarily blocked, causing some transactions to be unable to be completed in time. In order to prevent users from losing funds when withdrawing their assets, Binance Exchange also announced that it would suspend Bitcoin withdrawal services until the network returns to stability, but the announcement came out Afterwards, many Twitter users ridiculed that Binance chose to suspend Bitcoin withdrawals because it was unwilling to process the high transaction fees on the Bitcoin network.
At that time, Bitcoin mempool showed that there were more than 400,000 transactions waiting to be completed. This traffic jam phenomenon is generally believed to be caused by the recent launch of BRC-20 tokens. For example, the PEPE meme currency soared 263% last week, attracting users to play BRC-20 tokens. currency, driving the Bitcoin network's handling fees to surge by 400% compared to April.
The suspension of withdrawals on the Binance exchange only lasted for an hour, and then Binance resumed the Bitcoin withdrawal service. At present, deposits and withdrawals are completely normal. Many people are also reminding Binance that it should introduce lightning network withdrawals, but this There will be greater risks behind this method. On the surface, it is to solve the problem of Bitcoin online gambling, but it may bring more transfer confirmations, asset losses and other situations that reduce the user experience.
B. On May 10, the United States will release the price index, and Bitcoin will fall back to the US$27,000 range due to the wait-and-see atmosphere.
The U.S. Department of Labor will announce the latest October price index today. The market expects the annual price index growth rate to drop from 5.6% to 5%. However, both the U.S. and crypto markets experienced a retracement yesterday, and the market is worried about the actual price increase. The price index will be higher than expected because most investors are still quite optimistic about slowing inflation, an expectation that has pushed up risk asset prices in the past month.
Bitcoin was the first to reflect yesterday, with the price falling from US$28,000 to US$27,000. As for US technology stocks, in addition to large value stocks, small and medium-sized stocks have successively released their financial reports. Most of the results are not as expected, and the stock prices have also experienced quite significant declines. However, Overall, the market has a very strong wait-and-see atmosphere, because now, it is increasingly difficult to predict or interpret the price index and link it to the Fed's behavior.
Because raising interest rates now not only takes inflation into consideration, the side effects of raising interest rates, such as slower economic growth, increased liquidity pressure on banks, etc., may cause a hard landing for the U.S. economy. Even if the price index growth does not slow down, the Fed Interest rates may also be suspended due to economic concerns, so tonight's price index theme will be quite difficult to interpret. At present, it seems that the possibility of the price index exceeding expectations and causing the market to fall is relatively high.
C. On May 11, the price index CPI increased by 0.4% monthly and 4.9% annually, with different market views.
Yesterday, the U.S. Department of Labor released the latest price index for April. The results showed that the price index growth slowed down in the previous month and rebounded, reaching a monthly increase of 0.4%. However, the market was the first to interpret an annual increase of 4.9%, which was lower than the previously expected 5.0%. Asset prices initially rose. However, after careful interpretation this time, we still have doubts about the price index. The core inflation issue is still unresolved, especially rent and second-hand car prices.
Let’s look at food and energy first. The monthly growth rate of this block is 0%. The decline in energy service prices has successfully offset the increase in food and bulk energy prices. Next, the most critical core price index has a monthly increase of 0.4%. Among them, the price of second-hand cars is The main reason for the increase in the price index in April, which reached a monthly increase of 4.4%, is that second-hand car prices rebounded strongly in April. The reason may be a temporary rebound after falling for 12 consecutive months, which has little impact on interpretation. big.
The real trouble is rent. This time the monthly increase is still as high as 0.4%. Since rent basically only rises but never falls, its rigidity has always been considered by the market to be a difficult source of inflation. The rent index continues to rise this month. Overall, the rent index continues to rise. It is said that inflationary pressure is still there, and the data level is not enough for the Fed to make a turn.
Cryptocurrency trends weaken as investors adjust interest rate expectations
The result of this price index lottery is not ideal. Although the annual growth rate dropped to 4.9%, which is much better than the expected 5%. As mentioned above, rent and second-hand car prices are still thorny issues, and inflationary pressure has not It has not eased as much as the market imagined. Another point is that Fed officials have come forward to say that the Fed has no plans to cut interest rates this year. Citibank even issued a report that it will increase by another 2 points this year, and there will be no chance of interest rate cuts.
Chicago interest rate futures trading results show that the United States will start to cut interest rates as soon as the fourth quarter, but there are also 1% chips that believe that the United States will not cut interest rates until the end of 2023, which means that the market is adjusting its expectations for interest rates, and the high interest rate environment may envelope the United States. For a period of time, and indeed as the Fed said, they will maintain high interest rates until the long-term annual inflation rate drops to 2%, which is equivalent to seeing the annual inflation rate increase at 2% for more than three consecutive months, and It is still at 4.9%. According to expectations, there is indeed a chance to see the first annual growth of 2% in the fourth quarter of this year.
Based on this calculation, we really have to wait until 2024 to see three consecutive months, which is just in line with the Fed’s expectation that it will not cut interest rates this year. We speculate that the Fed may really wait until the first quarter of next year before starting to consider cutting interest rates, but the current assets The market's view is far more optimistic than ours, believing that there will be a turnaround in the fourth quarter and that the Fed will cut interest rates due to the US economic recession crisis. Whether this inference is reasonable or not remains to be determined by the market results.
Last week, the United States also announced that the number of people applying for unemployment benefits reached 264,000, a new high in a year and a half. This is the result that the Fed wants to see. The number of unemployed people has finally begun to increase, and the interest rate hike cycle has successfully slowed down the U.S. economy. Down the line, the originally tight labor market with a high degree of labor shortage has also eased. If nothing unexpected happens, inflation will indeed continue to slow down, but it is not certain whether the speed will be as optimistic as the market expects.
All in all, part of the decline in the cryptocurrency market and the United States last week was because investors adjusted their expectations for interest rates, thus selling off more risky assets in their hands and switching to buying U.S. bonds as a safe haven. When an economic recession is expected, buying value Stocks and U.S. bonds tend to be the best solutions, with funds flowing from risk assets into U.S. Treasuries.
Based on the current situation, we believe that Bitcoin will continue to consolidate at $26,000 for a while. At present, the banking crisis theme has disappeared, cryptocurrencies no longer have safe-haven appeal, coupled with the high interest rate environment and the large Bitcoin handling fees On the other hand, it will be difficult for the crypto market to turn around in the short term. Several extremely low-probability events have occurred in the crypto market at the same time last week. It is expected that it will remain around US$26,000 this week without much fluctuation.
Review of last week [MICA RESEARCH] The banking crisis theme will subside. Can Bitcoin hold $28,000?
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