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Crypto is currently dominated by macro sentiment. As such, all eyes are on the FOMC today, with the market fully expecting a 50bp hike and at this point it appears highly unlikely we would deviate from here. That said, there is room for uncertainty with regard to the forward trajectory and any potential balance sheet tapering.

Fed fund futures are currently pricing in 2.75%, or a 50bp rate hike at every meeting, i.e. the market is fairly bearish at this point, in part driven by recent commentary from the Fed. Were the commentary to be more dovish than expected, we see some potential for a rally in risk assets, though clearly the Fed is under pressure to continue to ‘talk tough’ on inflation, even if only to constrain expectations.

In Ethereum, the all-hands developer meeting last week was ultimately uneventful, though the prospect of delaying the difficulty bomb (which increases block times dramatically to essentially force a transition from proof of work to proof of stake) was discussed though rejected. This would give the team longer to deliver the merge and might therefore cause a de facto delay. At this point, we believe the merge is on track, most likely for mid-late Q3.

Given very low retail interest in crypto currently, the markets are largely dominated by macro based funds, which are clearly highly sensitive to the inflation and rates narrative. This appears unlikely to change any time soon, most likely until Q4, at which point inflation could normalize and CPI is likely to enter higher comps at the very least. We believe that some normalization of headline inflation prints along with a likely delivery of the Ethereum merge should be a more supportive environment for crypto but until that point, we may very well be in for a challenging and choppy market, with ongoing support from long term holders offset by very low incremental inflows, particularly given depressed retail activity. That said, we believe that cash balances are high and that given an improvement in the macro narrative, investors are likely to re-enter the market, especially given coins (especially altcoins) are currently at depressed valuations, particularly when Ethereum promises to become deflationary and to deliver 10%+ staking yields post merge.

Over the weekend, Yuga Labs conducted a sale of its land NFT, Otherside. This led to extremely high gas fees which subsequently led to Yuga Labs proposing that ApeCoin would need its own blockchain or layer 2. APE was heavily bought in the days leading up to the auction but the gas experience led to a pushback from the community, which caused a sell off in the coin, from highs of almost $28 to below $16 on Sunday.

In the L1 space, Solana experienced a 7-hour outage over the weekend due to high volumes from NFT minting bots. In the Terra space, the 4pool launched on Curve (FRAX, UST, USDC, USDT), which provides an alternative source of yield for UST, along with a new source of liquidity, but should also contribute to the growth of FRAX and should therefore be supportive to FXS valuation (which is used to part collateralize new FRAX minted).

Fantom also saw a 27% drawdown on Saturday, as a large investor with $45m of collateral was liquidated. TVL on Fantom has gone from a peak of $8bn in March to around $3bn currently.
In the DeFi space, Sushiswap received a restructuring proposal involving compensation restructuring and the search for new leadership, which has received around 90% support in forum.