Cryptocurrency prices are making the beginning of this new week by experiencing some greens, with Bitcoin trading at $26,026 and Ether exchanging hands at $1,672 at the time of writing. Meanwhile, the total crypto market cap is just under $1.1 trillion.
But what does the future hold for crypto prices? Let’s look at some catalysts that could create heightened movement in crypto prices in the coming days and weeks!
Renewed Volatility to Continue
Last week, Bitcoin plunged to $25,392, hitting its lowest price since mid-June, amid cascading liquidations. The largest cryptocurrency led the market-wide slump and caused more than $1 billion in total crypto futures liquidation, a 14-month high.
Some pointed to the bankruptcy of China Evergrande and Elon Musk’s space exploration company SpaceX’s supposed bitcoin sales to be the reasons. However, the move has likely been due to liquidations in the illiquid and flat market.
During the recent price drop, a substantial amount of longs were liquidated. A large sell-off by an influential player during the thin liquidity simply caused prices to fall quickly as traders were forced to sell their positions to avoid getting liquidated, adding to increased selling pressure and creating a loop of falling prices and long position covering.
After weeks of no movement in the market, a big move like such was expected, and now this new wave of volatility is expected to continue, with sentiments to remain bearish in the days ahead. Currently, funding rates from short traders have been increasing, and high rates can lead to price volatility, as traders are incentivized to be on one side of the market.
Amidst the worsening macroeconomic outlook dampening appetite for riskier assets and forced selling, the next couple of weeks will be important for the crypto asset. On top of it, “The September Effect” is around the corner, historically not good for crypto prices.
September is usually the worst month for Bitcoin, with only two in the last ten years being positive, that too with modest gains. Statistically speaking, BTC has lost about 6% of its value this month on average.
A move below Bitcoin’s next key support level of $25,000 would prove bearish for the entire crypto market and could see more decline in the weeks ahead.
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Upcoming FOMC Meeting on Sept. 19-20
A fundamental catalyst for falling crypto prices has been the rising interest rates in the US, which are currently at multi-year highs. And this is bearish for risk assets as borrowing becomes expensive, making cash and bonds attractive.
After sending the rates to virtually zero to combat the effects of the pandemic, the Federal Reserve enacted the first of what would be eleven interest rate increases on March 16, 2022.
During their two-day meeting in July, Fed officials expressed concerns about the pace of inflation and said more rate hikes could be necessary in the future unless conditions change. The meeting resulted in a rate hike of 0.25% that markets expected to be the last one of this cycle. However, the meeting minutes showed that most members are concerned about inflation which continues to be high, and are of the view that additional monetary policy tightening may still be required.
With that, interest rates have been brought to a range of 5.25% – 5.50%, the highest level over 22 years.
In the most recent Federal Open Market Committee (FOMC) meeting, there was an agreement that inflation is “unacceptably high,” but there was also a mention of “several tentative signs that inflation pressures could be abating.” Despite this, “almost all” members were in favor of increasing the rates.
While far from the central bank’s 2% target, inflation has come down a lot since peaking above 9% in June last year. Meanwhile, GDP gains have averaged above 2% in the first half of 2023 and are on pace to rise another 5.8% in the third quarter. At the same time, the unemployment rate was at 3.5% in July, near its lowest level since the late 1960s.
Now, both stock and crypto markets are preparing for the September 19-20 meeting with market expectations mixed. The Fed meets regularly eight times a year, and after the upcoming meeting, the next two will occur on November 1 and December 13.
Rising Scams and Rugs on Base
On August 9, Coinbase opened its Ethereum-based layer 2 platform Base to the public after first announcing its launch in February and then onboarding developers in July. Even in such a short amount of time, this new blockchain has attracted more than 500 fraudulent tokens.
According to the crypto market integrity platform Solidus Labs, scammers who thrive on “hype, promise, and price and volume manipulation” have earned about $2 million in profits.
The recent report by the New York-based Solidus showed that scam crypto projects attracted about $3.7 million in trading volume on decentralized exchanges (DEXs) based on Base. Moreover, scammers managed to execute $2.7 million worth of buys, $700K worth of sales, and $300K in wash sales.
To profit from their schemes, scammers either swiftly withdraw all liquidity from their DEX pairs once a substantial number of users have invested or generate an excessively large number of new coins by first minting them and then subsequently selling them, causing the pair to lose their ETH reserves.
The report also noted “deceptively touted and traded” cryptocurrencies on Base, such as meme coin BALD which attracted more than $68 million from traders that saw its creator raking in over $5.2 million after hyping the token on X (formerly Twitter) and then pumping up its price on the DEX called LeetSwap.
Solidus Labs analysts cautioned users against meme coins and DEXs on the L2 solution since funds lost to rug pulls or tokens exclusive to these DEXes offer no means for recovery or withdrawal should an exploit occur.
Last week, RocketSwap, the second largest DEX on Base, was also hacked for 471 ETH. Meanwhile, SwirlLend, another DeFi lending protocol that recently went live on Base and Consensys’ L2 Linea, ended up rugging its users and running off with 277 ETH after draining the protocol’s pools and then promptly deleting their website, Twitter, and Telegram.
Base, which aims to bring the next billion mainstream users to web3 and DeFi, has had a wild start. With hundreds of scam coins erupting in a matter of two weeks since the blockchain went public and cost users millions of dollars, it doesn’t speak well for the platform or the crypto prices.
Prominent Upcoming Token Unlocks
Another big catalyst for crypto prices is token unlocks, which increase the supply of the tokens that were previously frozen to prevent team members or early investors from liquidating their holdings and are often considered bearish.
On average, crypto prices decline leading up to the event, according to analytics firm The Tie. However, in cases where the liquidity freed up was over 100% of the average daily volume, the value of tokens quickly rebounded, only to drop yet again in a matter of two weeks.
Now, in the near future, several popular coins could be seeing some volatility, including the Liquid staking protocol Lido (LDO), which is scheduled to unlock 8.5 million LDO tokens on August 26, equating to about 0.97% of the supply. All of these Lido governance tokens will be distributed to investors currently holding more than 300 million LDO tokens.
Another project is Avalanche, whose native token AVAX also has an unlock scheduled for August 26, where it will release 9.54 million AVAX tokens, amounting to 2.77% of the total circulating supply. However, its last unlock in May was relatively well received by the market.
Yield Guild Games’ YGG is scheduled to release 12.2 million YGG tokens on Sunday, totaling 6.6% of its circulating supply, adding to the mere 30% unlocked supply.
Over the next week, some prominent tokens to be unlocked as per their vesting schedule are AGIX, SUI, GMT, IMX, UNI, NEAR, SOL, BLUR, and DOT, as per TokenUnlocks.
While not happening in the immediate future, Ethereum layer 2 scaling solution Arbitrum will release 1.11 billion ARB tokens in March next year, representing 87% of the token’s circulating supply, with more than 5 billion ARB tokens still locked.
Progress in Lawsuits
The industry has been facing increasing legal and regulatory scrutiny that influences prices. And before the recent bout of volatility, it had been a slow summer for crypto, except in the courts, with a lot of developments going on in bankruptcy cases and lawsuits related to the US Securities and Exchange Commission (SEC).
The SEC maintains that most cryptocurrencies are securities, while the courts have not been clear on how digital currencies should be treated. Last month, Analisa Torres, a US judge in the Southern District of New York, said XRP issued by Ripple Labs was security only when it was sold to institutional investors and not when the general public (retail) was involved.
However, US judge Jed Rakoff disagreed with that view in his case, in which the SEC has alleged stablecoin issuer Terraform Labs sold unregistered securities. The thing is, the initial July ruling in the Ripple case was never precedential in the first place, not until the US Court of Appeals for the Second Circuit weighs in, and even then, the ruling will be binding only on the district courts within the circuit.
Now, the SEC is seeking to file its motion to appeal the ruling by Torres. While, according to the SEC, a timely review is warranted due to the “number of actions currently pending that may be affected” by the decision the appeals court makes, Ripple is opposing the regulator’s attempts to accelerate the process.
As per the latest update, the SEC has filed the motion, and the defendants (Ripple) are expected to file their opposition papers by September 1, with the SEC’s reply expected by September 8.
According to Ripple CEO Brad Garlinghouse and co-founder Chris Larsen, the case and appeal can run together even if an appeal is granted. The ‘case’ here refers to whether Larsen and Garlinghouse’ aided and abetted the violation of securities laws by Ripple, which is scheduled to go before a jury next year.
Another big court ruling everyone is waiting on is the ongoing Grayscale vs. SEC case that would determine if the SEC was unreasonable in its repeated denial of Grayscale’s proposed Bitcoin ETF. If the ruling comes in Grayscale’s favor, it is expected to generate a market-wide surge, but the opposite could worsen the current red situation.
Crypto ETF Development
When it comes to ETFs, Grayscale is a prominent player which aims to convert its $12 billion GBTC bitcoin trust into an ETF. A decision in the case was expected last week. However, an absence of a verdict saw a dip in BTC prices. The lawsuit’s outcome can potentially influence future regulatory guidelines and practices regarding crypto.
The SEC is also slated to make a decision on at least five spot bitcoin ETF bids in early September from asset manager giants, including BlackRock, VanEck, WisdomTree, and Invesco, that look after a combined $15.5 trillion.
A spot Bitcoin ETF in the US is expected to give the asset class a significant market push by bringing more liquidity and better integration into the financial system.
While spot crypto ETFs might not be here anytime soon, Ether-futures ETFs are coming with eight companies — including Bitwise, Volatility Shares, and ProShares — filing applications for the same. Cryptocurrency exchange Coinbase has also obtained approval to offer Bitcoin and Ether futures to eligible customers in the US.
For Ethereum, besides an ETF, the EIP-4844 upgrade could also positively affect its prices. Expected for Q4 2023, the highly anticipated upgrade will introduce a mechanism called proto-danksharding — an interim step towards full Danksharding, an advanced form of sharding — to reduce gas ees and increase Ethereum’s transaction throughput.
So, as we saw, amidst the ongoing downtrend, the crypto market has a lot of events to keep an eye on in the near future that can send prices even lower or act as a catalyst for the next bull run.
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