This week, we are closely following 3 key developments:
1. Macro (still) in the driver's seat
2. Price action
3. Crypto Updates: Goerli success, Tornado Cash knock-on effects
1. Inflation stays in the (market) driver’s seat
Last week, we picked up some incredibly useful data points regarding inflation with the release of July’s CPI print:
Recapping Headline (i.e., including food and energy):
Recapping Core (i.e., excluding food and energy)
Headline decreases were mostly due to falling energy prices (-4.6% MoM and Gasoline -7.7%). In an uncertain geopolitical environment (i.e., Russia’s invasion of Ukraine and other global developments), this can be reversed with increased tensions.
Further, according to CME Group’s FedWatch tool, the probability of the Fed raising interest rates by either 50bps or 75bps is split 49.5% and 50.5%, respectively.
In other macro news, the NY Fed Empire State Manufacturing Index fell to -31.3 indicating a contraction in business conditions, and US housing starts fell 9.6% in July.
The main takeaways here are:
2. Price Action
3. Crypto Updates: Goerli success, Tornado Cash Knock-on effects
Once again, the big idiosyncratic catalyst remains the upcoming Ethereum Merge. As we discussed last week, the Goerli testnet was successful, thus teeing up what looks to be a successful September Merge.
Current rumblings around the potential PoW fork haven’t increased in tenor or traction. This doesn’t discount it not happening; however, major projects have been—and remain—vocally supportive of the PoS chain.
In other developments, since the OFAC’s sanction of Tornado Cash, the news cycle around has continued at full-steam. Last Wednesday, the Dutch police arrested a suspected Tornado Cash developer in Amsterdam.
Tornado Cash has been a useful tool for hackers to launder money, for example:
While the front-end has been taken down, the Tornado Cash smart contracts are immutable and exist on-chain, so they can still be leveraged.
What are the implications for DeFi protocols?
The kicker: Regulation has been a looming crypto headwind for years. Now with OFAC taking severe measures (read: sanctioning) this could further drive momentum for similar action by the world’s governments and regulators.
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