The cryptocurrency market has extended its upward momentum despite the recent tailwinds, with Ethereum still leading the recovery. The second cryptocurrency by market capitalization traded at $1,600 with a gain of 35% in the past week.
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QCP Capital trading company subscriber A market update claiming that the current bullish price action has been a “pleasant surprise to all”. This price action started on the back of the latest US Consumer Price Index (CPI) data. A measure used to measure inflation.
The CPI is standing at a 40-year high which was expected to have a negative impact on the cryptocurrency market. The opposite happened, the trading company claims, due to market participants expecting lower inflation in the coming months.
This potential drop in inflation could give risky assets room to continue their rally and convince the US Federal Reserve (Fed) not to rule out a 100bp rate hike. The financial institution will announce its decision on July 27. QCP Capital said:
Right now, a 20% chance is still priced at 100bps, but we saw 75bps as the most the Fed would do. So expect another batch as 100 basis points are priced exactly.
Ethereum is leading the way in relief as there is more clarity about the upcoming “merging,” an event set to integrate this network’s implementation layer with its consensus layer. Thus, the Ethereum migration is integrated into the Proof of Stake (PoS) consensus protocol.
The “merger” was initially scheduled for September which contributed to the shift in general sentiment across the cryptocurrency market and supported this rally. QCP Capital said the upward price movement was “feeled very strongly in the options market”.
The sector witnessed a “rush” to buy long contracts (calls) until the end of September. In other words, options traders are bullish on the potential impact of the “merger” on Ethereum.
Can Ethereum Extend the Current Rally?
Conversely, the options markets are pointing to a potential exhaustion of Ethereum in the short term. QCP Capital is recording an increase in calls sold at the price of ETH and believes that the insolvency announcements from other companies can act as a tailwind for the second cryptocurrency by market capitalization.
Several companies have been negatively affected as part of the contagion caused by the default of crypto hedge fund Three Arrows Capital (3AC), which has failed to meet billions in debt from its peers. This includes Celsius, BlockFi, Voyager, and Genesis.
These companies have had to cease operations at some levels with new companies announcing that they are affected by 3AC’s exit almost every week. Yesterday, crypto exchange Zipmex suspended withdrawals, and there were growing rumors of other companies taking similar actions.
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QCP Capital said:
While markets were optimistic, it may not be completely free of credit contagion just yet. We have added to our negative skew mode and keep gamma and vega a bit long (long term options).