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Weekly Market Update: Coinbase’s Layer 2 Takes Off

In this weekly market update, we take a look at the Coinbase's Layer 2 project, along with other macro economic developments from around the world.

Posted August 16, 2023

Blog cover for HVC market update week 33 2023
Blog cover for HVC market update week 33 2023

The subdued, sideways crawl of the market continues this week with the major coins, led by BTC and ETH remaining in a very tight band of price activity.

This week, Coinbase’s layer 2 network Base went live, driving a flurry of activity as dApps and volume make their way to the new network. The Coinbase badge of approval has everyone feeling like the institutional grade service will be in play.

Outside of that, Bitcoin is being hodled at record levels and the US regulatory environment continues its machinations with the Ripple decision from last month likely to be challenged. 

In local events, we heard the news about Dasset challenges, sadly these situations happen in all industries and once again are a reminder about the strength and reliability of non-custodial services. 

Globally, there are concerns that oil prices will start to rise later in the year. Combined with bad weather in various parts of the world, this could flow through into prices and drive inflation. 

The US CPI data painted a mixed picture, with the central bank making it clear that the job isn’t done. Europe got a nasty gas price shock because of some industrial action down in Australia.

Meanwhile, the UK economy continues to show resiliency that many didn’t expect. China fell into deflationary territory, whereas conversely, India’s economy continues to perform nicely. 

New Zealand’s Manufacturing and Services PMI fell month on month, and we are clearly in contractionary territory.  This week the NZD/USD rate dipped below US 60c for only the 4th time since the GFC, and the RBNZ held the OCR at 5.5% as expected by economists.

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The languid market means that the sentiment in the crypto market has remained in neutral territory, as it has done for the last month.

Screenshot of crypto fear and greed index for august 16 2023

Trend highlights this week: 

  • For the third week the market has been pretty lethargic, so again we have an even spread of gains and losses in the top 30 assets this week.
  • BTC and ETH barely moved on from last week, up 0.6% and 0.1% respectively.
  • THORChain (RUNE) was the best performing major asset, up 58% on last week, with HBAR getting a notable mention up 15%. 
  • Optimism (OP) was our biggest loser of the week, down 13%. 

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Highlights from the crypto space

According to Glassnode, 68.5% of all Bitcoin, some 13.3m coins, has been dormant on chain for over a year, showing that there is a “persistent bias for hodling”.

Glassnode chart

Tether is now the 11th biggest holder of BTC. They are buying BTC from their profits, but as a whale, folks are now concerned about their potential to influence the market. 

A group of white hat hackers are proposing to form a group of committed security professionals who you can contact when you have a DeFi hack. 

Ongoing rumours about Huobi have led to a deeper look at the exchange’s reserves… as expected there has been a lot of withdrawal activity…. Where there’s smoke?

Other notable highlights from the crypto space:

  • DCG is facing some regulatory scrutiny for trades with its subsidiary Genesis Global. 
  • JP Morgan has come out stating the obvious, that Paypal’s Ethereum stablecoin could be a boost for Ethereum. 
  • Binance has become the first licensed exchange in El Salvador. 
  • The US Federal Reserve is expanding oversight of state bank involvement with crypto so that they conduct the activity in a safe manner. 
  • The SEC has appealed the Ripple decision for various reasons, including its impact on “various pending cases.” Bitstamp is suspending altcoin trading for all US citizens due to the regulatory uncertainty. 
  • September is becoming D-Month for the SEC decision on the many Bitcoin Spot ETF applications.  
  • Coinbase’s challenge of the SEC suit ramped up with 6 securities law Scholars filing a brief in support of their claims that the SEC doesn’t have jurisdiction over them. 
  • Uniswap has deployed onto the Coinbase layer 2 Base network and Base is now officially open to the general public
  • Sam Bank man-Fried has had his bail revoked because it is believed he is involved in witness tampering. He has also been charged with using stolen funds for 2022 political donations.  
  • In local news, we were sad to see that Dasset seems to be having issues. Just another reminder about the value of being in control of your assets by holding them in your own wallet.

That’s the summary of the crypto world, so now let’s look at other macroeconomic news and dev elopments from around the globe.

Starting off with global news 

Global air passenger numbers are up 31% on last year, while travel being at 95% of pre-Covid levels.

Illustration for HVC Macro news update

🌎 Macro news TLDR: China dips into deflation 

An executive order from the Biden administration curtailing investment into tech in China is “spectacularly bad timing” for the struggling Chinese economy. No retaliation has been announced, however the geopolitical arm-wrestle is on. 

China's share of goods that are imported and exported

The OPEC+ supply cuts are having the desired effect of reducing inventories and many are worried we will see more price hikes.

U.S. economic news

US CPI continues to trend the right way, up 0.2% in July for an annual increase of 3.2%. Analysts were predicting 0.3%. Core CPI also came in slightly under estimates at 4.7% due to increasing shelter costs which are a known lagging indicator.

The Fed’s comment, “it’s not a data point that says victory is ours”. Right on queue, PPI rose 0.3% in July, driven by services costs. 

US Consumer Price Index through July 2023

Signs that the US consumer is starting to struggle, US credit card debt has blown through $1 Trillion for the first time.

Prices for gas and crude oil are on the rise, and this could fast become a headwind for CPI with the Cleveland Fed estimate for August ticking up.

And in Europe….

Italy shocked its banking community by announcing a 40% windfall tax mainly because those banks didn’t reward depositors with higher interest rates. 

European Natural Gas prices spiked as much as 40% after Australian LNG workers on key plants voted to strike. Talk about a jittery market. 

The UK surprised many by eking out a better than expected 0.2% growth in Q2. The expectations of another rate rise from the BoE are increasing. 

Britain GDP 2023 Q2

In Ukraine, there has been no progress on the much hoped for Grain deal. 

And in Asia Pacific…

China is now in deflation with CPI dipping to -0.3% compared to a year ago. PPI dipped for the 10th month in a row.

The challenges continue to mount with trade slumping due to slower global demand and clear stress in its property sector. The cow bell for stimulus is growing.

Chart showcasing China's deflation rate

The Indian central bank held rates steady this month. The Philippines and Singapore both put out GDP numbers showing growth, however economists were expecting more from the Philippines

In Australia the Westpac-Melbourne Institute Consumer Sentiment index dips 0.4%

to 81 and remains deeply pessimistic. 

Chart showcasing consumer sentiment index

In New Zealand, Fonterra’s cut to its milk price forecast which is estimated by BNZ economists to remove $2bn from the local economy. Statistics NZ has reported that food price inflation for the last 12 months has fallen to 9.6% from 12.5% in June.

PMI’s for manufacturing and services came out this week, neither painting a great story with Manufacturing coming in at 46.3 and services at 47.8, both down on last month and both flashing red. 

The NZD dipped below 60c on the USD pair for only the 4th time since the GFC, this will only increase any tradable inflation.

Chart showing interest rates

And finally as expected, the RBNZ has left the OCR unchanged at 5.5%, however they did signal rates will be higher for longer.

That’s a wrap for this week. Thanks for reading!

Stay tuned for the next update.

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Disclaimer: Information is current as at the date of publication. This is general information only and is not intended to be advice. Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.

Last updated August 16, 2023

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