The Weekly Wrap: ECB rate hike decision, zkEVM bonanza

Jul 22, 2022

236’237 Bitcoin (worth $5.5b)

Amount of Bitcoin sold since May 10th following contagious liquidation cascades


1. ECB surprises with 50 bps rate hike

The Facts:

  • On Thursday, ECB’s Governing Council decided to raise the three key ECB interest rates by 50 bps, the first rate hike in 11 years.
  • The ECB also introduced its new anti-fragmentation Transmission Protection Instrument (TPI) that aims to limit divergence in borrowing costs to increase price stability and therefore support countries with large debt loads like Italy.
  • Another proxy for economic strength came in Thursday as well, as the U.S. revealed that jobless claims hit an 8-month high as initial unemployment claims increased last week to 251’000.

Why it’s important:

  • As the anemic economy and debt crisis in the euro area put the ECB in a tricky position regarding the potential impact of a hawkish policy, they finally join other major central banks in the fight of curbing inflation.
  • The United States, Canada, New Zealand, and Switzerland among others have already raised rates within this cycle by a combined 1’140 bps.
  • The aggressive tightening policy of the ECB is warranted as the June HICP in the euro area shows no signs of slowing down printing a new record high of 8.6%.
  • Moreover, the rate hike decision reinforced the euro that hit U.S. dollar parity last week.
  • With energy being a main driver of inflation, Russia resuming gas flows via Nord Stream came in as a relief.
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SOURCE: (DATA) SDW, EUROSTAT, (CHART) BITCOIN SUISSE RESEARCH)
2. Rollups see development explosion as zkEVM season starts

The Facts:

Why it’s important:

  • With the merge being targeted for September, it is important to know that the PoS transition is not a scalability upgrade yet but rather enables their sharding implementation at a later stage.
  • Vitalik Buterin stated in a talk this week at the EthCC that Ethereum will be able to process 100’00 TPS in Ethereum’s final form.
  • While it likely takes a year to get there, general-purpose zkEVMs represent an important addition to the current scaling landscape available for Ethereum and are perceived as one of the most elegant scaling solutions operating on a second layer.
  • As Polygon leverages their native MATIC token for staking only, the scaling layer will create additional demand for ETH as transactions are settled in Ethereum’s native token.

DeFi’s smart contracts and transparency seem to be provocative antidotes to the toll takers, opacity, and uncertainty in traditional financial markets. As a result, DeFi should continue to gain share.

Cathie Wood, CEO, and CIO of Ark Invest on DeFi. (via Twitter)


In other news
  • Iota’s incentivized Shimmer network launches in beta (via Shimmer)
  • Lido announces plans to further expand stETH on Layer2 (via Lido)
  • Goerli merge scheduled for August 10 (via Github)
  • Coinbase receives regulatory approval in Italy (via Reuters)
  • Minecraft bans NFTs (via Decrypt)
  • Tesla sells 75% of its Bitcoin holdings (via The Washington Post)
  • Sushi launches crosschain AMM SushiXSwap (via Sushi)

Bitcoin Suisse