Market Trend 18/7 - 24/7｜ETH continues to rally ahead of Merge update, ECB has first rate hike in 11 years

It was yet another excellent week for crypto as Ethereum continued to rally ahead of its “Merge” network update, bringing Bitcoin and altcoins along for the ride. On the institutional side, troubling news came along as Tesla’s records disclosed that the electric vehicle giant sold 75% of its Bitcoin holdings in the second quarter of this year, putting Bitcoin on a bumpy ride towards the end of the week. Macro-wise, the European Central Bank (ECB) shocked the world by announcing a 50 bps rate hike - their first hike in 11 years and highest in 22 years, much larger than expected on economic forecasts.

Over the next week, ETH will most likely hold its rally as the Merge gets closer - currently set for a September 19th deployment. Anticipation hype may be reduced due to recent statements from its co-founder. Before the Merge is deployed, it’s inevitable for Bitcoin to stay in the shadows as Ethereum takes the spotlight. Everything can change in the next few months, however, as recent macro developments such as ECB’s large rate hike may indicate that leading economies are heading to a recession.


ETH continues to rally ahead of Merge update


As the Merge gets closer, a network update taking Ethereum from a Proof of Work to Proof of Stake framework and reducing energy costs by over 90%, the market continues to show its excitement for the novelty that is soon approaching for a September 19th release. ETH showed an 18.8% growth, from $1.34k to $1.61k.

The expectation is for ETH sentiment to remain positive throughout the next couple of months. There are a couple of factors that may get in the way of holdings ETH’s rally, however. The first one is the actual release date of the Merge, which has been delayed several times over the past year and may happen again. The second factor is statements from Ethereum’s co-founder itself, Vitalik Buterin, who recently stated that Ethereum is still years away from completion - with the Merge hopefully taking it to 55% completion.

Both concerns are most likely not enough to cause a downside bounce against the current rally, though, but it is enough for the hype to slowly fade away and consolidate the price around $1.5k levels.


Tesla sells most of its BTC holdings


Tesla CEO Elon Musk stating that Tesla has “diamond hands,” meaning it would never sell its Bitcoin regardless of market volatility. Source: Twitter.

Despite the very bullish market sentiment at the moment for Ethereum and crypto in general, recent news about Tesla did slightly shake up the trend. After financial records were released, Tesla officially disclosed that it sold 75% of its Bitcoin holdings in the second quarter of 2022, bringing in $936 million in cash to its balance sheet.

Such news is extremely negative for the ecosystem for two reasons; not only was Tesla (and its CEO Elon Musk) massive supporters of Bitcoin believing in its “long-term potential,” but they sold such holdings at an immense loss - buying the asset at around $50k dollars in February 2021 and selling it at roughly $19-20k during Q2 2022.

Despite the would-be devastating news for crypto supporters, it most likely barely touched the assets as the entire ecosystem continues to rally. It may bring a larger hit to institutional inflows in the long run, however, but should pose no concern for the current rally which is being clearly driven by retailers.


European Central Bank has first rate hike in 11 years


The ECB raised interest rates way more than expected this week, stating that concerns over inflation are now much larger than growth considerations and even the impact currently in place due to the war in Ukraine. It raised its interest rates by 50 basis points, while most economic forecasts expected a 25 bps raise at most, therefore drastically surprising all estimates. The rate hike was the first in 11 years, including 8 years with negative interest rates, and it was also the largest hike since the year 2000.

While the crypto market really shows no sign of slowing down with the current bullish spike, this surprising ECB rate hike shows that massive inflation concerns are well beyond the US territory - it’s spreading across the other leading economies and causing such to make drastic, once-unexpected decisions.

It’s extremely important to keep an eye on GDP reports, inflation data and announcements like the ECB’s rate hikes in the upcoming months as they serve as a strong indication if the main economies of the world are actually heading into a recession. If a recession is officially announced, most likely by the US first, a cascading event will inevitably affect crypto.




Author: Gate.io Researcher: Victor Bastos
* This article represents only the views of the researcher and does not constitute any investment suggestions.
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