U.S. financial markets haven’t fully priced in the Fed’s target rate

After the annual meeting of the US Federal Reserve’s Jackson Hole, the Fed did not accidentally release the “continuous rate hike” remarks to the market, but this time the remarks were more direct. Obviously, the Fed was very unhappy with the market’s expectation of a rate cut, and chose to express its interest in a more direct way. The hawkish stance even threatened “there will be another major interest rate hike”, and until inflation fell to the long-term 2% target, the US stock market and the cryptocurrency market quickly reacted to the increase in interest rates, and the bitcoin price fell to 20,000. Near the U.S. dollar, ether was down $1,500.

There is not much news about cryptocurrencies this week. Investors are watching the ETH 2.0 upgrade schedule announced by the Ethereum Foundation. The Ethereum POS upgrade will be divided into two phases. The first phase is scheduled to take place on September 10. The Bellatrix upgrade will be carried out on the 11th. This version has built-in adjusted node parameters and consensus layer parameters. The function is to update the parameters of the POW blockchain network to prepare for the POS upgrade. At this time, Ethereum is not a POS, but a follow-up Between September 15th and 16th, the second-stage Paris execution layer upgrade will officially convert POW into a POS consensus mechanism. This time, it is purely a consensus mechanism transfer, and transaction efficiency and handling fees will not be improved.

After the merger and upgrade, the ETH in the user’s hands will be converted into ETH 2.0 tokens after the blockchain nodes are successfully synchronized. Since many ETH miners claim that they will not give up the original old chain, they may also get the tokens of the old ETH POW chain. This makes the probability of ETH POW forked coins relatively high. The exchange sees huge business opportunities for handling fees and will also list old ETH tokens, which means that users are likely to get two tradable ETH tokens, which is equivalent to Users can get one more free POW old coin, and no matter how you sell it, you will not lose money, which sounds like a good profit opportunity.

But the premise is that the US stock market did not fall sharply on September 15. The current cryptocurrency market is greatly affected by the trading sentiment of US technology stocks. If the trading situation on the day is optimistic, Ethereum 2.0 will have good results. Even the old POW coins after the fork may have a good market.

Therefore, we speculate that some short-term speculators will choose to enter ETH after the announcement of the US price index on September 13, and quickly sell the new and old ETH coins after the merger. Before that, let us talk about the US financial market. The market’s view, again, is the trend in U.S. interest rates, which all managers have traded against this year.

A. 08/22 The US Federal Reserve will release more interest rate policy messages at its annual meeting at Jackson Hole on Friday
The Jackson Hole Economic Forum in the United States will be held on August 26. This has always been an important occasion for the Federal Reserve (Fed) to pass interest rate policies to the market, and it is also a major event that shakes the direction of the U.S. stock market and the encryption market. Last year, Powell was in this session He will explain to the market the wrong statement that “inflation is temporary”, but he certainly won’t want to embarrass him again this year, and more and more investors believe that he will maintain a more hawkish stance on interest rate hikes, which also drives up U.S. Treasury yields climbed on Friday, with the 10-year yield now at 2.99%.

Last week, the market was still optimistic that the US Federal Reserve would start cutting interest rates as soon as early 2023, but on Friday it turned instantly, and the flow of funds pointed out that investors believed that the Federal Reserve would continue to raise interest rates, and the hawkishness of the Federal Reserve was reversed. In response to the stance, the US dollar index climbed to a new high of 108.3. This turning point occurred in just two days and caught investors by surprise.

Seeing that the US dollar index climbed to a new high, the crypto market also reacted. The mainstream cryptocurrencies all sold off to a certain extent. Bitcoin was revised down from $24,000 to $21,000, and Ethereum also slipped from $1,800 to $1,600. It is expected that the market will make more predictions and revisions to the hawkish stance, and the prize will be officially opened at the Jackson Hole annual meeting on Friday. The 10-year U.S. bond yield will be the best indicator of market reaction.

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B. Coinbase CEO on August 24: The crypto industry will grow rapidly in the future and will continue to build good products
Coinbase CEO Brian Armstrong accepted a TV interview with CNBC to discuss the operation direction and market trends of crypto exchanges in the cold winter. He talked about the recent return of the market to the trend that the Fed will continue to raise interest rates, which caused Bitcoin and Ethereum to trade this week. Faced with price reductions, he admitted in the interview that crypto exchanges will face price competition in the medium and long term, which will negatively affect Coinbase’s profitability.

He explained that competitors would have the ability to build similar platforms to compete with Coinbase if they put the time into the medium and long term, but he emphasized that the key to Coinbase’s success is not to focus too much on short-term results, but to focus on more than ten years. Long-term development, continue to invest in potential product projects, such as Coinbase Cloud, the bear market is the time when they can concentrate on building products.

When it comes to NFTs, he said that NFTs are still in a very early stage, and Coinbase is working to integrate NFT minting, trading and custody services. Then he said that ETH Staking is also a good business, and more and more people are interested in staking their tokens. In addition, they are also expanding more institutional businesses, such as the previous BlackRock and other institutional custody services. He is optimistic that the future output value of the encrypted market will account for 10% of global GDP. The proportion will be higher and higher.

Related reading: Coinbase CEO: ‘Cryptocurrency bear market’ will continue for a year to a year and a half

C. On August 26, Binance Exchange announced the countermeasures for the ETH 2.0 upgrade
Binance issued an announcement yesterday regarding the handling measures of the Ethereum 2.0 upgrade. The content mentioned that Binance users will be suspended from the ETH deposit and withdrawal functions during the Bellatrix and Pairs stages, respectively. Users are advised to reserve sufficient time during these two upgrade periods. Let nodes process transactions. On the other hand, Binance also proposed two scenarios for Ethereum POS upgrade, namely seamless upgrade and splitting into two chains. The former is much simpler, and users will not get new ETH tokens. There will be no changes to ERC-20 tokens and ETH.

The second scenario is more complicated. Assuming that Ethereum splits into two chains, Binance will use the new POS chain as ETH, and send the split ETH to the user at a ratio of 1:1. At this time, the user is in addition to the original ETH POS. New chain coins will also get ETH POW old chain tokens. Binance Exchange is expected to only provide new chain tokens for trading. Old chain coins still need to go through the listing review process again, but Binance does not guarantee listing.

U.S. financial markets haven’t fully priced in the Fed’s target rate
The Jackson Hole annual meeting and the Fed’s recent announcement that it will continue to raise interest rates has forced Wall Street to start to admit defeat. More managers who originally believed that interest rate cuts would start due to economic recession in 2023 began to see a rise in U.S. bond yields. Interest rates have driven interest rates to rise gradually. The 2-year U.S. Treasury bond yield rose to 3.36%, and the 10-year bond rose to 3.09%. lead to a mild recession”.

Rising yield rates are also loosening U.S. technology stock prices, but the market has been less sensitive to yield rates recently than in the second quarter. The reason for the recent decline is nothing more than the fact that various technology companies are revising down financial forecasts, laying off workers and reducing spending, making the market less sensitive to yield rates. Investors believe that the U.S. economy has entered a recession, but the U.S. economic index has performed well due to the recovery of employment in the tourism and catering industries after the normalization of the epidemic. The number of layoffs has created a strange situation in which the “job market is tight” but the “PMI purchasing managers’ index has declined”.

This will make the Fed continue to believe that the current US economy still has room to raise interest rates to ease inflation pressure, and the US economy has no signs of recession. At present, the market expects that the Fed may raise the benchmark interest rate to a maximum of 3.50% to 4.00% in 2023. The 2-year bond yield rate of 3.36% has not yet reached the lowest 3.50%, which means that the market has not fully reflected the benchmark interest rate. Many people still think that the Fed has a chance to cut interest rates in 2023. Market opinions are in chaos. Treasury yields haven’t climbed above 3.5%, and market winds have been changing this week, making it difficult to maneuver.

It is worth noting that the message of “fighting against inflation” disclosed at this Fed annual meeting is just a re-release of the content that has been repeated in the past. Although the market has been corrected in a short period of time, it cannot be used to speculate on the future market trend. The turbulence should end when the August price index report is released on September 13, especially since the US gasoline price has fallen by more than 10% compared to July, even if the inflation pressure does not really disappear, there is still a chance to drive a beautiful Monthly reductions in numbers, there is a good chance that the market will rise by then, unless core inflation rises more than expected, but the pressure is generally considered to be low at present.

Assuming that a beautiful price index report is released on September 13, and Ethereum is expected to be officially merged and upgraded on September 15, US time, then the price of ETH has a high probability of rising in the two days from September 13 to 14. Short-term The winning rate should not be low. Relatively, if the inflation data on September 13 does not drop as expected, the situation will be difficult to predict. The two days after the price index is released and before the merger of ETH 2.0 is indeed an opportunity to bet.

However, the market situation after the ETH 2.0 upgrade will be very chaotic. The major trading platforms have pushed many ETH 2.0 derivatives in the past few months, corresponding to different exchange ratios, and the gameplay is also different. No industry can set the price perfectly. Various products and sufficient liquidity will create a lot of arbitrage space for Ethereum after the upgrade.

Seeing the above opportunities, many investors are busy researching how to extract risk-free profits from numerous price differences, and are also trying to bet on profit opportunities after the emergence of forked coins. Therefore, we cannot predict the price trend of ETH after the merger. It is speculated, but the situation will definitely be very chaotic. Investors must make decisions based on their own risk tolerance. Assuming that the fork rises sharply before the fork, investors will choose to sell ETH tokens and POW old coins after the fork. At this time, we subjectively believe that the market Downside probability will increase.