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September 25, 2023

Bitcoin Outperforms Stocks After Fed’s Interest Rate Pause

September 25, 2023

In comparison to stocks, Bitcoin demonstrated resilience last week as the Federal Reserve decided to maintain interest rates at 20-year highs. 

Despite Fed Chair Jerome Powell hinting at the possibility of another rate hike in the near future, Bitcoin held its position above pivotal support at $26,000. 

Meanwhile, Ethereum grapples with an inflationary shift due to dwindling network activity and Mt. Gox creditors evaluated news of a one-year extension to the repayment deadline.

  • Bitcoin remains steady as stocks fall on the back of Fed rate pause
  • Ethereum inflationary shift amidst network slump
  • Mt. Gox trustee delays Bitcoin creditor repayments for another year

Bitcoin remains steady as stocks fall on the back of Fed rate pause

Bitcoin displayed resilience last week as the United States Federal Reserve opted to maintain its interest rates at 20-year highs during the recent Federal Open Market Committee (FOMC) meeting. 

According to the Press Release, the central bank’s statement emphasized its commitment to achieving maximum employment and maintaining inflation at a 2% rate in the long run. This meant keeping the target range for the federal funds rate at 5.25% to 5.5%.

US Fed Funds Rate
US Fed Funds Rate

 

 

Bitcoin, which had been eagerly awaiting the Fed’s decision, saw its price briefly surge past $27,000 after the Fed rate pause was confirmed. 

However, price surges were shortlived as Fed Chair Jerome Powell took to the stage.

Despite the expected rate pause, Fed Chair Jerome Powell hinted at the possibility of another rate hike, projecting an appropriate federal funds rate of 5.6% by the end of the current year. 

Powell also noted that the road to achieving the Fed’s 2% inflation target still had a long way to go. 

Although this revelation caused jitters in the crypto market, the world’s largest cryptocurrency only recorded a brief 1.16% fall over the course of the week maintaining a position above the pivotal zone of support at $26,000.

In comparison, the S&P 500 and NASDAQ stock indexes recorded 2.9% and 3.13% losses respectively.

Despite Powell’s tempered expectations, experts in the crypto industry suggested that further rate hikes were still unlikely. 

Michael van de Poppe, founder and CEO of trading firm MNTrading, expressed optimism following the Fed’s decision, suggesting that this might mark the end of the hiking policy. 

He predicted that Bitcoin would likely start an upward trend from this point, acknowledging the common occurrence of a fakeout in response to such news.

Leading up to the FOMC meeting, Bitcoin had been on a bullish run, previously surpassing the $27,000 mark earlier in the week, a significant milestone for the cryptocurrency in September. 

This rise in value was partially driven by anticipation of the Fed’s announcement, as well as a general sentiment of optimism within the crypto market.

As Bitcoin continues to navigate the intricate dance with macroeconomic factors, the cryptocurrency community remains vigilant, watching for signs of market sentiment and reacting to events in real time. 

Bitcoin vs S&P 500 vs NASDAQ
Bitcoin vs S&P 500 vs NASDAQ

 

Ethereum’s inflationary shift amidst network slump 

Ethereum is facing an unexpected shift towards inflation as network activity reaches its lowest point in nine months. 

The decline in network fees, a primary indicator of Ethereum’s usage, has sparked concerns among analysts.

According to data collected by Santiment, network fees, a proxy for Ethereum’s usage, have plummeted by more than 9% in the past week, falling to a mere $22.1 million. 

Ethereum transaction fees vs price between September 2022 and September 2023
Ethereum transaction fees vs price between September 2022 and September 2023

 

 

As a result of the reduced network activity, the supply of ETH has started to increase. 

Fewer tokens are being destroyed or “burned” during transactions compared to new tokens being created, as indicated by Ultrasound.money data.

The declining network fees can be attributed in part to the growing adoption of layer 2 networks. 

Experts, including Lucas Outumuro, the head of research at IntoTheBlock, suggest that this trend may continue in the near term. 

Ethereum’s deflationary narrative initially emerged following the Merge, a significant network upgrade in which Ethereum transitioned from a proof-of-work consensus mechanism to proof-of-stake. This shift had a profound impact on the cryptocurrency’s supply dynamics.

Under normal circumstances, during periods of high network activity, Ethereum would burn more tokens than it created, reducing its overall supply—a bullish sign for its price. However, when network demand wanes, this dynamic flips, as observed recently.

Several crypto observers, including JPMorgan analysts, have pointed out bearish developments for Ethereum. 

They noted that Ethereum’s highly anticipated Shanghai upgrade failed to boost network activity, with transaction counts, active addresses, and total value locked on the blockchain all declining since April.

Investors and analysts are closely monitoring Ethereum’s situation as it navigates these challenging times.

Ethereum’s 30-day supply change
Ethereum’s 30-day supply change

 

 

Mt. Gox trustee delays Bitcoin creditor repayments for another year

In a significant development for Mt. Gox creditors, Nobuaki Kobayashi, the trustee overseeing the rehabilitation of the defunct Mt. Gox Bitcoin exchange, has officially announced an extension of the creditor repayment deadline.

The newly revised deadline for creditor repayments has been extended from its initial date of October 31, 2023, to October 31, 2024, according to an official letter dated September 21.

The letter explains, “Given the time required for rehabilitation creditors to provide the necessary information, and for the Rehabilitation Trustee to confirm such information and engage in discussions and share information with banks, fund transfer service providers, and Designated Cryptocurrency Exchanges, etc., involved in the repayments, […] the Rehabilitation Trustee will not be able to complete the repayments above by the deadline… set for October 31, 2023.”

For those creditors who have already provided the necessary information required for rehabilitation, there is a glimmer of hope, as repayments for this group could potentially commence by the end of this year, according to Kobayashi. 

However, he cautioned that the repayment schedule remains subject to change based on evolving circumstances, and the precise timing of repayments to individual rehabilitation creditors has yet to be ascertained.

Once hailed as one of the world’s leading Bitcoin exchanges, Mt. Gox’s journey took a tragic turn after a major hack in 2011 severely impacted its reputation. 

The relentless cyberattack led to Mt. Gox’s ultimate collapse in 2014, amid allegations of insolvency, resulting in a staggering loss of 850,000 BTC. 

This catastrophic event left approximately 24,000 creditors in its aftermath, many of whom have been patiently awaiting the resolution of their claims for an extended period.

As of the most recent data available, the Mt. Gox estate holds approximately 138,000 Bitcoin, currently valued at about $3.7 billion, along with a similar amount in Bitcoin Cash (BCH) worth $29 million and 69 billion Japanese yen ($46.5 million).

Gold bitcoin on keyboard besides MT Gox logo on mobile display

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