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Last week, the Fed cut its federal funds target rate by 50 bps to 5.00% p.a. (upper limit) which could have strong implications for the crypto community, says Andre Dragosh, head of research Europe, CoinShares.
“The time has come,” stated Fed chairman Jerome Powell back in August at the Jackson Hole central bank symposium. Last week, the Fed cut its federal funds target rate by 50 bps to 5.00% p.a. (upper limit) which was slightly more than markets had priced in before the FOMC meeting. In other words, the Fed positively surprised markets with this rate cut.
It is quite likely that the Fed is just getting started with rate cuts. At the time of writing, the market already expects 3 additional cuts (75 bps) by year-end and another 5 cuts (125 bps) next year through December 2025. The Fed has also telegraphed additional cuts via its latest Summary of Economic Projections (SEP) (aka “dot plot”).
Nonetheless, despite this more-than-expected interest rate reduction of 50 bps, it is quite likely that the Fed still remains “behind the curve.”
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For instance, a standard Taylor rule based on the unemployment rate and core PCE inflation implies that a fed funds target rate of around 3.6% p.a. is already warranted based on the underlying economic and inflationary momentum.
In addition, the latest fund manager survey by Bank of America indicates that monetary policy was still “too restrictive” in September 2024 – in fact, the most restrictive since October 2008 according to this survey.
There still remains an increased risk of a recession as several reliable indicators such as the prominent “Sahm rule” remain triggered.
That being said, our quantitative analyses imply that global growth has become less relevant for the performance of bitcoin while other factors like monetary policy or the US dollar have become more important.
In other words, a US recession might not be as negative as widely anticipated for bitcoin and other cryptoassets. To the contrary, it may lead to even more Fed rate cut expectations and US Dollar weakness which could provide even more tailwind.
With the latest move by the Fed and other major central banks, the global liquidity tide is clearly turning; global money supply has already reached new all-time highs and is accelerating. Expansionary money supply growth periods are usually associated with bitcoin bull runs.
The re-steepening of the US yield curve which tends to be a recessionary indicator is also an indicator for increasing liquidity and therefore bullish for scarce assets like bitcoin.
What is more is that the increase in global liquidity is coinciding with the increasing supply scarcity of bitcoin which has been intensifying since the latest halving in April 2024.
Our analyses have shown that there tends to be a significant lag between the halving event itself and the moment the supply shock starts to become significant, as the supply deficit only tends to accumulate gradually over time.
So, it appears as if there is a perfect confluence between an increase in potential demand via global money supply and a simultaneous reduction in available supply via the halving.
The market has been mired in “chopsolidation” – a choppy consolidating range-bound market – since the latest all-time high in March 2024. This was due to several factors such as government sales of bitcoin, Mt. Gox trustee’s distribution of bitcoins, or the macro capitulation in early August 2024.
In this context, the summer months have generally been one of the worst performing months for bitcoin historically with September being the worst month of the year.
However, Q4 tends to be the best month for bitcoin from a pure performance seasonality perspective and we also expect bitcoin to break out of this chopsolidation in Q4.
It seems as if the wait for a new break-out to the upside is finally over. The Fed pivot may have just delivered the perfect catalyst for that.
Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.
For investors, ETH’s future depends on how Ethereum balances innovation with maintaining healthy economic policy, says Matthew Kimmel, digital asset analyst, CoinShares.
Ethereum’s ability to host a wide-range of applications and assets has been evident for years, but the investment case for its native token, ETH, has become increasingly complex. In the wake of key protocol changes, particularly the hardforks activating EIP-1559 and EIP-4844, investors are asking how Ethereum’s adoption will translate into ETH’s long-term value.
While the platform has scaled, the relationship between its growth and ETH’s supply and demand — and thus its price — is no longer as straightforward as it once seemed.
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The EIP-1559 revolution: linking utility to token value
When Ethereum implemented EIP-1559 in 2021, it introduced a burn mechanism where the overwhelming majority of transaction fees (base fees) would be permanently removed from circulation. This created a direct relationship between Ethereum usage and ETH’s supply. As users paid for transactions on the Ethereum network, the burn would act as a deflationary force, reducing ETH’s supply and putting upwards pressure on its price.
In 2023, our valuation model at CoinShares showed that under the right conditions, where Ethereum generated $10 billion annually in L1 transaction fees, something it achieved at its 2021 heights, ETH could reach a value near $8,000 by 2028.
Since then, however, optimism has waned due to the Dencun hardfork and the rise of Layer-2s (L2), which have upended the fee burn and altered ETH’s value potential.
The rise of layer-2s: a double-edged sword
L2 platforms were designed to scale Ethereum by moving transactions off the main chain (L1) and onto faster, cheaper networks. Initially, L2s complemented L1, helping the network handle more transactions without clogging the base chain — like a pressure release valve giving balance in times of high usage.
But with the introduction of “blob space” in 2024, L2s could now settle transactions on L1 at much lower costs, reducing their requirement to pay expensive L1 fees. As more activity migrated to L2s, the supply burn that EIP-1559 was designed to instill began to drop, weakening the downward pressure on ETH’s supply.
The reality of Ethereum generating high L1 fees to support ETH’s value is now looking bleak. L1 transaction fees have steadily collapsed, leading to questions about what differentiates the services offered at each layer, and what will drive the L1 fee landscape moving forward.
A path forward: restoring the burn or adapting to new realities
Despite these challenges, there are potential paths forward to restore demand for L1 transactions and, in turn, ETH valuation.
One option is developing high-value use cases that rely on L1’s security and reliability, yet, given current trends, this appears unlikely in the near future. Another possibility is that L2 adoption grows so rapidly that the sheer volume of transactions compensates for the discounted fees — but this would require extraordinary L2 growth, beyond near-term expectations.
The most likely, and perhaps the most controversial, solution is repricing blob space to increase L2 settlement fees. While this would restore some of the L1 supply burn, it risks upsetting the economics of L2s that have been key to Ethereum’s recent success and enhanced its ability to compete as an ecosystem with alternative platforms (like Solana, Binance Chain, etc.).
The uncertain future of ETH
While L2s have scaled Ethereum, they have also disoriented the mechanisms that tie ETH’s value to its utility. For investors, this means that ETH’s future depends on how Ethereum balances innovation with maintaining healthy economic policy.
For now, ETH’s investment case is unsettling, and risks remain high as the Ethereum community decides its path forward.
Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.
In an interview, Michael Gronager also said it doesn’t matter who wins the U.S. presidential election.
SINGAPORE — Stablecoins will drive institutional adoption in Asia, “even if regulators are not happy with it,” Chainalysis co-founder and CEO Michael Gronager said in an interview at Token2049 in Singapore. Yet, while more users in the region have leaped into cryptocurrency than elsewhere, the U.S. is still the industry’s most influential geography.
Stablecoins, crypto tokens whose value is pegged to a real-world asset like the dollar or gold, underpin the crypto trading system. Also, because their value is fixed – or meant to be – they can be used as a store of value and a medium of exchange.
“One of the things we have seen as the biggest trends in crypto right now, and probably the killer app, is something as mundane as stablecoins,” he said. “Two-thirds of all transactions in transaction volume on blockchains are stablecoins.”
Chainalysis, a blockchain analytics company, regularly releases reports on the state of crypto and its adoption across the world. The most recent listed five Asian countries in the top 10 of the Global Adoption Index. India and Nigeria have kept the top two positions for two years in terms of grassroots crypto adoption, and Indonesia, a new No. 3, is the fastest growing.
“Last year, one or two banks in Japan said they wanted to launch a U.S. dollar-backed stablecoin within a year. It hasn’t happened yet,” Gronager said. “I had conversations last week in Japan and now we have 10 banks wanting to launch such stablecoins.
“Why hasn’t it happened yet? (Because) banks are slow. They talk to the regulator.”
Regulators definitely have “some level of concern” and many things will need to be ironed out, he said. In the meantime, banks have to face growing competition from stablecoins when it comes to remittances, according to Gronager.
While Asia appears to dominate in terms of adoption, the U.S. which ranks fourth in the Chainalysis report, is the most influential region because that’s where the trading volumes come from and the crypto economy looks to institutions like the U.S. Congress and Securities and Exchange Commission (SEC) for big signals.
“The real volume of crypto is tied to countries like the U.S. and others,” Gronager said. “The story we are trying to tell you is more like saying crypto users per capita. So basically, how many people using [crypto] within the country. The adoption is, like, who’s holding crypto for the average people in countries. In the U.S., that’s less than it is, for example, in India.”
Despite the regulatory influence and despite crypto influencers’ focus on the U.S. presidential candidates’ positions on the industry, the November election isn’t a big deal, Gronager said.
“It won’t matter much,” whether Donal Trump or Kamala Harris wins, Gronager predicted. “Just getting on the other side” of this election will be healthy for everyone.”
Tigran Gambaryan has been detained in Nigeria since February.
A group of former government employees and compliance officials, now working in the crypto industry, rallied in front of the United Nations on Wednesday to show support for Tigran Gambaryan, Binance’s head of financial crime compliance who’s been detained in Nigeria since February.
Gambaryan is being held as a representative of the company he works for, with prosecutors trying him on money laundering charges brought against Binance. He is being held in the Kuje Prison, which is notorious for holding terrorists and other criminals, where his health has deteriorated heavily; in a recent video, he was struggling to walk with a crutch. A spokesperson for his family said he has also suffered multiple infections, as well as a herniated disc in his back.
Despite this, the U.S. government only publicly acknowledged his detention earlier this month, though Secretary of State Antony Blinken has discussed Gambaryan with Nigerian officials in May, the New York Times reported.
Amanda Wick, a former federal prosecutor and government investigator who organized the protest, noted that Gambaryan used to work for the U.S. government.
Prior to his role at Binance, Gambaryan was an investigator with the IRS’s Criminal Investigation wing.
“America has fought harder for people who committed crimes [in the countries they were detained in] than for someone who fought for his country,” Wick said.
Nigeria prosecuting someone to get the attention of their employer is “truly unjust,” said Chris Tyrrell, the chief risk and compliance officer at Ondo Finance.
Gary Weinstein, the founder of Infinity Advisory LLC and former state assistant attorney general, said all of the attendees present were in favor of consumer protections and “high-integrity” markets, including Gambaryan. He noted that Gambaryan had been invited by the Nigerian government when he visited in February and was given a “false assurance of safe passage.”
“One cannot do their job if one is in fear of getting snatched by a nation-state,” he said.
The latest in blockchain tech upgrades, funding announcements and deals. For the period of Sept. 26-Oct. 2.
Theta Labs Launches ‘EdgeCloud for Mobile,’ Allowing Android Users to Contribute Spare GPU Power
Theta Labs, the developer behind the entertainment-focused blockchain project Theta Network, has launched EdgeCloud for Mobile, allowing Android users to contribute spare GPU power to the Theta EdgeCloud network and earn TFUEL tokens. According to the team: “Available on Google Play, the app lets users provide resources during idle times, supporting AI research in media, healthcare and finance. Using a Decentralized Physical Infrastructure Network (DePIN), Theta EdgeCloud cuts GPU-intensive task costs by over 50% compared to traditional cloud providers, offering scalable, decentralized AI model training and inference services.” The blog post reads: “For the first time ever, the Theta team has implemented a video object detection AI model (VOD_AI) that runs on consumer grade Android mobile devices, delivering true computation at the edge and enabling unparalleled scalability and reach. VOD_AI is a computer vision technique that uses AI to analyze video frames to identify objects by scanning video frames, looking for potential objects and drawing bounding boxes around them. This process is similar to how the human visual cortex works.” (THETA)
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The service won’t be available to New York state in the beginning.
Payments giant PayPal (PYPL) will enable its business clients to buy, hold and sell cryptocurrency directly from their accounts in the U.S., potentially opening up a larger market for the firm.
After letting its retail users do the same via PayPal and Venmo accounts, the company said that it also saw demand from business owners to buy, hold and sell crypto. “Business owners have increasingly expressed a desire for the same cryptocurrency capabilities available to consumers,” said Jose Fernandez da Ponte, SVP of blockchain, cryptocurrency, and digital currencies at PayPal in a statement on Wednesday.
The payments company will also let U.S. merchants to externally transfer cryptocurrency on-chain to third-party eligible wallets, according to the statement.
PayPal has been active since 2020 to let its users buy hold and sell crypto currencies directly from their accounts. Last year, it unveiled its U.S. dollar-denominated stablecoin, PayPal USD (PYUSD), which reached a $1 billion market cap this summer.