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Crypto Forecast: BTC, ETH Lead Rally as ’Merge’ Date Announced; Risk Event Ahead

Crypto Forecast: BTC, ETH Lead Rally as ’Merge’ Date Announced; Risk Event Ahead

Zain Vawda, Analyst

Crypto Key Points:

  • Bitcoin Price Surges 20%, Ethereum up 50% Ahead of Historic Event.
  • Collective Gains Push Overall Crypto Market Cap Back Above $1 trillion.
  • Bitcoin Short-Term Outlook Remains Bullish, Fed Meeting Holds Key.

Bitcoin, Ethereum & Alt-Coins: A Brief History of Crypto Winters

It’s been a week filled with impactful news headlines allowing volatility to grow, while we are a week away from the much-anticipated US Federal Reserve Meeting on the 27th July. Bitcoin and the overall crypto market have experienced strong momentum over the last week, pushing Bitcoin (BTC) above its consolidation range highs of $23,000 creating a new high of $24,200.

The relief in the market is reflected in growing futures premiums. Offshore premiums align with early July levels but remain compressed, suggesting a prudent sentiment.The Fear and Greed index has climbed from the extreme fear area after a record-long 74-day streak of extreme fear, in what could be another sentiment boost for the ailing crypto space.

Source: Arcane Research

Massive Ethereum momentum, is ‘The Merge’ driving the rally?

Strong, weekly, gains were seen by Ethereum (ETH), which is up more than 50 percent since last week, with a high of $1,646. The world’s second most valuable cryptocurrency was boosted by news that an event known as ‘The Merge’ has a provisional date to go live, the week of September 19.This will see Ethereum switch from a proof-of-work system to a proof-of-stake system, reducing the network’s energy consumption by roughly 99.95 percent.

Developers of the cryptocurrency describe it as “the most significant upgrade in the history of Ethereum”, showing a commitment to ensuring it might stand the test of time That’s the story people could be buying.

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Fundamental Risks

It’s important, however, to acknowledge that ‘The Merge’ event is still a risky trade and that there are long-term regulatory and technological risks crypto faces. Long-term risks continue to persist around the crypto space with the most notable being regulation and the uncertainty surrounding it as well as technical failures of the system.

The evidence of this rests in the new landmark agreement reached by the European Parliament at the end of June for regulating cryptocurrencies. As part of the new rules, transfers of bitcoin and other crypto assets will be subjected to the same money laundering regulations as traditional banking transfers.

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Fed Meeting Will Hold Key Catalyst for Cryptos in the Week Ahead

A decision from the Federal Reserve on Wednesday on interest rates could hold the key for Bitcoin and global markets.The declines in cryptos have been partly due to cracks in the digital asset market, including the meltdown of stablecoin Terra and the failure of highflying hedge fund Three Arrows Capital, while a correlation to stocks hasn’t helped.Having shown themselves to be largely correlated with other risk-sensitive assets, like stocks, Bitcoin (BTC) and other tokens have followed the S&P 500 and Nasdaq Composite into bear market territory this year as investors fret over macro pressures.

Facing the highest inflation in four decades, the Fed has already moved aggressively to raise interest rates in a bid to tame red-hot prices, but this risks spurring a recession. It would seem like it is building the groundwork for a trend reversal, but the market needs a little more assurance that the Fed is going to temper the rate of US rate hikes.

BTCUSD Daily Chart

Source: TradingView, chart prepared by Zain Vawda

Final Thoughts

Electric car maker Tesla sold $936 million worth of bitcoin, or 75% of its holdings, in the second quarter. The market reaction following the announcement showed once again the resilience of Bitcoin as despite an initial decline we rallied higher back above the consolidated range at $22,800. The short-term outlook for Bitcoin remains bullish, should we maintain above the $22,800 handle heading into the weekend we could see a bounce to $25,000 before peaking around the $29,000 area before Wednesday’s FOMC meeting kicks off. The expectation would be that such a bullish move would drag altcoins along for the ride.

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--- Written by Zain Vawda for

Contact and follow Zain on Twitter: @zvawda

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.