GOMARKET WEEKLY #28

Market analysis with Mike Ermolaev

GoMarket Weekly returns for the 28th time with market analyst Mike Ermolaev breaking down the week's top crypto headlines, pinpointing macroeconomic effects on Bitcoin and the broader crypto market. The Federal Reserve just lowered interest rates, Bitcoin's recent surge has everyone excited, and institutional investors are clamoring for a piece of the digital asset pie. Ethereum's leading edge and Bitcoin's quiet rise in regular transactions are both up for discussion. It's GoMarket time!

Bitcoin Gains After Fed's Rate Cut

Following the Federal Reserve's pivotal decision on September 18th to lower the base interest rate by 50 basis points—from 5.25-5.5% to 4.75-5%—Bitcoin surged in response. This marked the first rate cut since 2020 and triggered a 4% rise in Bitcoin's value, with the cryptocurrency trading in a 7-day range of $57,767 to $63,928. With the rate cut, borrowing costs decrease, putting risk-on assets like Bitcoin in take-off mode, thus attracting more investors and driving up demand.

BTC Price Chart
Source: TradingView

BlackRock labels Bitcoin as a "Unique Diversifier"

What sets Bitcoin apart, according to BlackRock's latest report, is its tendency to move independently, utterly unconnected to traditional risk and return drivers, making it an attractive addition to any portfolio.

The world's largest asset manager refers to Bitcoin as a "unique diversifier" citing its performance over the last decade. According to Blackrock, despite its volatility, Bitcoin outperformed all major asset classes in 7 out of the last 10 years, achieving an extraordinary return of over 100% annualized during this period.

BlackRock sees Bitcoin's appeal as a hedge against global economic shocks and political turmoil because it operates outside traditional financial systems and isn't controlled by any single government. Events like the U.S. regional banking crisis in March 2023 showed Bitcoin's value as a safe-haven asset, with a 25% rise in Bitcoin's price during the crisis, compared to a 2% drop in the S&P 500 and just a 10% rise in gold.

Source: BlackRock

Institutional Investors Change Strategy

CryptoQuant CEO Ki Young Ju noted that institutional traders are shifting their approach to Bitcoin, as evidenced by a 75% decrease in aggressive short positions on CME futures over the past five months. This significant reduction signals a growing confidence among institutional investors, who are less inclined to bet against the cryptocurrency. This shift in market sentiment could be a bullish indicator for Bitcoin's future trajectory.

As shown in the chart he provided, net short positions on CME Bitcoin futures have dramatically decreased from the extreme levels seen throughout 2022 and early 2023, when short positions reached as high as $300 million. By mid-2024, these positions had significantly diminished, coinciding with a steady rise in Bitcoin's price. 

Source: X

Vitalik Buterin Highlights Layer 2 Rollup Advancements at Token 2049

With Bitcoin's value on the rise and institutional interest growing stronger, Ethereum is also in hot pursuit of next-level scalability and user-friendliness. Speaking at the Token 2049 conference in Singapore, Ethereum co-founder Vitalik Buterin discussed the progress of Ethereum's Layer 2 rollups, emphasizing the drastic reduction in transaction fees. He noted that fees, which previously ranged "somewhere between $10 and $0.50," have now dropped to "under $0.01, basically zero." Buterin also pointed out that rollups like Optimism and Arbitrum have achieved significant security milestones, making them both "safer" and "finally affordable" for widespread use.

Buterin also noted that L2 rollups are becoming more secure, and Ethereum's transaction confirmation times have improved since the Merge in 2022, cutting waiting times in half to just 5 to 15 seconds. 

Concerns Over SEC's Digital Asset Regulations Raised at Congressional Hearing

In a recent hearing of the House Subcommittee on Digital Assets, Arkansas Representative French Hill sharply criticized SEC Chair Gary Gensler's approach to regulating digital assets, describing it as a source of "confusion and uncertainty" for the market. Hill emphasized that the SEC, under Gensler's leadership, has prioritized politics over its statutory mandate, stating, "The Gensler SEC's approach has injected even more confusion and uncertainty into the markets." He further pointed out that the SEC's actions, particularly in enforcement and guidance, have created a "lose-lose-lose" situation for consumers, investors, and businesses. Hill argued that this has led to significant compliance burdens that are "not fit for purpose," and in some cases, represent a "de facto ban" on digital assets in the U.S. He also highlighted the broader consequences, noting that many blockchain developers have left the U.S. due to the regulatory environment, with the country losing around 14% of its blockchain developers since 2018.

Louisiana Becomes First U.S. State to Accept Crypto for State Services

Meanwhile, the state of Louisiana has made headlines by becoming one of the first U.S. states to accept cryptocurrency for state services, including Bitcoin (via the Lightning Network) and USD Coin (USDC). A major step toward mainstream acceptance of crypto occurred when the Louisiana Department of Wildlife and Fisheries successfully received its first cryptocurrency payment.

Source

Spearheaded by Louisiana State Treasurer John Neely Fleming, M.D., this initiative allows residents to use their crypto wallets to pay for public operations. To address concerns about price volatility and fraud, the state has partnered with Bead Pay, an application that converts incoming cryptocurrency into U.S. dollars at the point of transaction. 

Donald Trump Buys Burgers with Bitcoin in His First Crypto Transaction

In another major step toward Bitcoin adoption, Donald Trump conducted his first Bitcoin transaction by buying burgers for fans at Pubkey, a Bitcoin-themed bar in New York's West Village. Using the Lightning Network-powered Strike app, Trump paid $998.70 for several dozen burgers, according to Drew Armstrong, co-founder of Pubkey, while casually remarking, "Bitcoin is really happening."

Source: X

Trump's appearance at Pubkey was met with mixed reactions, from enthusiastic Bitcoiners and supporters inside the bar to protesters outside. Despite the controversy, many in the Bitcoin community, like Pubkey co-founder Thomas Pacchia, saw the moment as "huge" and "iconic."

AI Scientists Urge Global Oversight to Prevent Catastrophic Risks

While crypto battles for mainstream acceptance, AI is taking center stage, accompanied by complex issues that insistently require solutions. Top minds in the AI industry have issued a statement about the risks posed by the technology they helped create. After meeting in Venice they are ringing the warning bell, pushing for contingency plans to be put in place in the event AI spirals beyond human control. A coalition from nations like the United States, China, and the United Kingdom is pushing for a centralized authority to oversee artificial intelligence development. As AI approaches closer to human-level intelligence, they warn that a loss of human oversight could swiftly unravel into "catastrophic outcomes for all of humanity." 

Among the signatories are the greatest minds in computer science – Turing Award winners Yoshua Bengio, Geoffrey Hinton, who spent a decade working on machine learning at Google, and Andrew Yao, whose mentoring helped some of China's most successful tech entrepreneurs. 

The group proposed that countries establish AI safety authorities to monitor and register AI systems, collaborate on red lines, and agree on warning signs, such as if an AI system could autonomously self-improve or deceive its creators. Dr. Gillian Hadfield, a legal scholar at Johns Hopkins University, remarked, "If we had some sort of catastrophe six months from now, if we do detect there are models that are starting to autonomously self-improve, who are you going to call?" 

Closing Thoughts

From the Federal Reserve's rate cut boosting Bitcoin, to BlackRock's endorsement of it as a portfolio diversifier, to Louisiana's adoption of crypto for state services—change is happening fast. Outside crypto, leading minds in the scientific community are issuing a frantic warning: if we don't take immediate action to safeguard AI development, we could be staring down the barrel of unimaginable devastation. As we stand on the edge of innovation, one thing is clear: the future is both thrilling and uncertain—let's navigate it wisely. Get ready for Mike Ermolaev's market expert viewpoint in next week's GoMarket Weekly, packed with actionable advice to help you stay ahead