The Weekly Wrap: GDPs and FOMC, Goerli Merge

Jul 29, 2022 - 4 min read

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1. Fed hikes 75 bps into weak U.S. GDP, euro zone GDP beats forecast and hits record HICP

The Facts:

  • To curb the ongoing inflationary pressure, the Fed announced on Wednesday its second consecutive 75 bps rate hike during their Federal Open Market Committee (FOMC).
  • The back-to-back rate hikes taking its benchmark rate to a range of 2.25%-2.5% are the biggest since early 1980s.
  • On Thursday, the Bureau of Economic Analysis reported that GDP fell 0.9% in the second quarter, the second consecutive decline after a 1.6% decline in Q1.
  • A wide range of causes, including declines in inventory, residential and nonresidential investment, and government spending, contributed to the decline.
  • New inflation numbers and GDP numbers for the euro zone came out Friday, revealing another record inflation high of 8.9% in July compared to the 8.6% prior and accelerated economy growth as Q2 GDP beat forecasts at 0.7% after the 0.5% growth record in Q1.

Why it’s important:

  • As the Feds efforts to tamp down runaway inflation are not without risks, they avoid a 100 bps rate hike to not run into a looming recession signaled by the newest GDP numbers.
  • According to CNBC’s Fed survey targeting fund managers, analysts and economists, 63% believe the Fed’s efforts will create a recession.
  • Despite a 9.1% U.S. CPI, a 75 bps rate hike, Microsoft, Alphabet and Amazon missing their earnings and a technical recession along the definition of a two consecutive quarter GDP decrease locked, markets across the board rallied after this week’s FOMC and GDP report.
  • Fed Chairman Powell stated that they likely "slow the pace of rate hikes at some point" yet did not rule out a similar move in the future.
  • With the Fed being perceived less hawkish and a slow down in GDP decrease, soothed investors pushed European markets alongside Asia-Pacific markets higher while Gold reversed recent losses and risk-on assets such as tech stocks and crypto joined the rally.
  • While the National Bureau of Economic Research is in charge of declaring recessions and expansions, the online encyclopedia Wikipedia locked its “Recession” page from further editing after it was altered about 50 times within 24 hours and now fits the narrative of Biden’s administration in its current form.
  • Regardless of surging inflation, rising interest rates, supply chain issues and a gas crisis, eurozone economy proved to be more resilient than expected with the GDP being much stronger than the expected 0.2%.
  • Interestingly Germany stalled, while Portugal (-0.2%), Lithuania (-0.4%) and Latvia (-1.4%) already contracted yet got pulled up by Spain, Italy and France.
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SOURCE: (DATA) BUREAU OF ECONOMIC ANALYSIS , (CHART) BITCOIN SUISSE RESEARCH

2. Ethereum Foundation announces Merge of Goerli and Prater

The Facts:

  • On Wednesday, the Ethereum Foundation announced the Merge of Goerli and Prater scheduled for August 6-12th, marking the last checkpoint before mainnet merge.
  • For the last Proof-of-Stake (PoS) testnet transition, Goerli will merge with Prater, a PoS beacon chain, and will retain the name Goerli post-merge.
  • The mandatory upgrade to enable the Merge, Bellatrix, will happen at epoch 112260 that is expected at August 4.

Why it’s important:

  • With Goerli being the last testnet to transition to PoS before the actual Merge, operators of nodes and validators face the last chance to run through the merge prior to mainnet.
  • If Goerli merges successfully, next in line is the highly anticipated mainnet Merge that likely happens in September as for instance, former major upgrade EIP-1559 went live only 1 month after its corresponding Goerli launch.
  • As ETC, ETH-BTC, and liquid staking protocol tokens such as Lido’s LDO or Rocketpool’s RPL started to rally, the approaching merge clearly indicates an impact on connected assets.
  • Especially ETC almost rallied 220% within the last two weeks on the back of the merge momentum in anticipation of ETH’s PoW miners allocating their hash power towards ETC and by that, significantly increasing the chain’s security.
  • Moreover, Vitalik Buterin classified ETC as “fine” PoW alternative to Ethereum.
  • Regarding the Merge, Vitalik recently stated in a Bankless interview that the Merge is “not priced in”, not only in market terms but also in psychological and narrative terms and thus further fueled the current momentum heading into the Goerli merge.

This is not an economy that’s in recession. But we’re in a period of transition in which growth is slowing …

Treasury Secretary Janet Yellen on recession fears (via Dailywire)

In other news

  • Coinbase faces SEC investigation over securities (via Reuters)
  • Arbitrum Rinkeby successfully migrates to Nitro (via Twitter)
  • ARK invest sells 1.4m shares of Coinbase (via Blockworks)
  • Mercedes to launch data sharing platform via Polygon (via Ledger Insights)
  • Nirvana Finance running on Solana drained via flash loan exploit (via CoinDesk)
  • Metaverse division of Meta looses $2.8b in Q2 2022 (via VentureBeat)
  • Voyager rejects offer from Alameda (via Cointelegraph)
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SOURCE: (DATA) DUNE, (CHART) BITCOIN SUISSE RESEARCH

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