The Weekly Wrap: U.S. GDP and a glance at Europe, Mainnet Merge Announcement

Dominic Weibel

Head of Research, Bitcoin Suisse

Aug 26, 2022

The Facts:

The U.S. Commerce Department reported Thursday that the U.S. GDP contracted less than previously estimated, revised to -0.6% from -0.9%, while the gross domestic income (GDI) rose at a rate of 1.4% in Q2.
The U.S. economy shrinks slightly in the second quarter, but the underlying numbers do not indicate a recession.
On Thursday as well, the U.S. Labor Department reported that unemployment claims fell 2’000 to 243’000, lower than the estimate, indicating labor strength.
Meanwhile, German benchmark year ahead power prices rose above €800/MWh on Friday, nearly 10 times higher YoY while Russia is cornering supply ahead of the winter.
The UK, that recently reported a 40 year high in inflation rates of 10.1%, is expected to see even higher inflation and rates as energy prices surge.

Why it’s important:

As the numbers reported add to a mixed outlook regarding a slowing economy while not indicating a recession, today’s Jackson Hole speech of FED Chair Powell is expected to give more clarity on how they plan to approach monetary policy from here.
As energy prices are highly linked to gas, they keep hitting record highs in Europe as natural gas, used to generate electricity and heat, now costs about 10 times more YoY.
With that, elevated energy prices fuel inflation and will likely massively hit energy heavy industry such as Germany’s.
Germany therefore considers postponing the shut-down of their last three nuclear power plants in order to mitigate energy shortages while Japan even signals to return to nuclear energy by developing next-generation reactors to fight soaring energy prices.
With the energy markets being squeezed, it is fairly obvious that the EU might want to return energy policy to the top of its political agenda.

SOURCE: (DATA) BUREAU OF ECONOMIC ANALYSIS, (CHART) BITCOIN SUISSE RESEARCH

The Facts:

On Wednesday, the Ethereum Foundation officially announced the upcoming transition from PoW to PoS, known as the Merge, including important information for validators.
The Merge upgrade will activate in two phases, “Bellatrix” on the Beacon chain consensus layer scheduled for epoch 144’896 (Sept 6, 2022) and Paris on the execution layer, that is currently still tied to PoW, at a Terminal Total Difficulty (TTD) of 58’750’000’000’000’000’000’000, (Sept 10-20, 2022).
The subsequent block after hitting TTD will be produced on the PoS Beacon chain and the Merge will be considered complete as soon as this block is finalized.
As client releases with Merge specs rolled out, the initial release of the execution client Geth 1.10.22 was borked yet got meanwhile (make sure to update your client to Geth 1.10.23).

Why it’s important:

With the highly anticipated mainnet Merge being the last checkmark on the long road to PoS, node operators now both need to update their execution and consensus client in tandem as the merge activated in not only on the consensus but also on the execution layer.
Importantly, the issue with Geth did not pose a risk of postponing the Merge as Ethereum offers a wider range of consensus and execution client.
However, as this again demonstrated how important client diversity is, Geth remains the most used execution client at 78.95% while the consensus client distribution is fairly satisfying.
To incentivize bug hunters to become even more active, the Ethereum Foundation raised the bug bounty for finding any crucial errors ahead of the Merge to $1m.
Moreover, discussions about censorship resistance and the current centralization of staking providers popped up after the OFAC (Office of Foreign Assets Control) sanctioned Tornado Cash.
Yet, staking providers are not the only points of centralization as RPC providers, MEV relays, front ends, upgradable smart contracts, multisigs, rollups, oracles, stablecoins and nodes hosted on AWS offer additional attack surface.

SOURCE: (DATA) ARCANE, (CHART) BITCOIN SUISSE RESEARCH

There’s no reason to treat the crypto market differently from the rest of the capital markets just because it uses a different technology.

Gary Gensler, 33rd chair of the U.S. SEC, on how crypto should be treated by the SEC (via WSJ)

sounds good, spot etf then?

rejecting Bitcoin spot ETFs since years. (via Twitter)

300 million

Website visitors on Binance exchange within 90 days

Buenos Aires to run Ethereum validators in 2023 (via CoinDesk)
Jump Crypto to build a new validator client for Solana (via Jump)
Dragonfly buys hedge fund MetaStable Capital with $400m AUM (via Bloomberg)
Coinbase to pause withdrawals and deposits during the Merge (via Crypto Briefing)

Dominic Weibel

Head of Research, Bitcoin Suisse

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