Week 29, 2023 - Weekly Market Outlook

TLDR

• U.S. House Republicans introduced a new bill, "Financial Innovation and Technology for the 21st Century Act"
• Chainlink launched its Cross-Chain Interoperability Protocol (CCIP) for early access users on several blockchains
• The U.S. Labor Department reported a decrease in jobless claims
• Bitcoin has made new Yearly highs
• Growth in Liquid Staking Derivatives (LSDfi) market highlighted.
• Analysis of Bitcoin and Ethereum
• DeFi sector overview
• Review of the week's top gainers and losers in crypto.

Introduction

As usual, the crypto industry has experienced an eventful week. We delve into a variety of topics that have shaped the crypto landscape. We begin with the US House republican introducing a new updated crypto bill. The goal of this bill is to create a regulatory framework that safeguards investors in the cryptocurrency sector. Chainlink, has launched its Cross-Chain Interoperability Protocol for early access users. We also explore the latest job data, which have a significant impact on the crypto market. We then delve into the field of Liquid Staking Derivatives finance, focusing on the opportunities it presents for users and the competition it fosters among validators.

In the market data section, we analyze the performance of Bitcoin and Ethereum, and highlight Optimism. Finally, we wrap up with a look at the best and worst performers of the week and a forecast for the week ahead.

US Republican Introduced a New Bill

On Thursday, U.S. House Republicans put forward a new bill concerning the oversight of digital assets. The goal of this bill is to create a regulatory framework that safeguards investors in the cryptocurrency sector. The introduction of the "Financial Innovation and Technology for the 21st Century Act" is a significant step towards building a regulatory structure that not only protects consumers and investors but also promotes American leadership in the digital asset space, according to Glenn “GT” Thompson (R-Pa.), Chairman of the House Committee on Agriculture.

This bill is one of many that have been proposed in recent years with the aim of establishing comprehensive regulations for digital assets. It comes at a time when the perceived absence of clear regulations and a surge of forceful enforcement actions are causing established cryptocurrency businesses to contemplate exiting the U.S. and discouraging startups from setting up there.

The bill, initially drafted in June, proposes a regulatory pathway for cryptocurrency exchanges to register with the U.S. Securities and Exchange Commission (SEC). This would allow them to trade digital securities, commodities, and stablecoins in a single platform. Dusty Johnson (R-S.D.) stated that the cryptocurrency industry is seeking clarity, and this cooperative bill provides both the CFTC and SEC a place in the decision-making process. The bill sets forth clear principles to ensure financial security and certainty as developers of digital assets continue to innovate.

In the revised bill, a variety of traditional securities such as stocks, bonds, transferable shares, and certificates of interest or participation in any profit-sharing agreement are excluded from the definition of digital assets. This could lead to a situation where a variety of assets in the DeFi market, like Compound's cTokens, could face heavy regulation under this provision, even if they are not currently regulated.

Chainlink Interoperability Protocol

Chainlink has launched its Cross-Chain Interoperability Protocol (CCIP) for early access users on the Avalanche, Ethereum, Optimism, and Polygon blockchains. The CCIP is designed to facilitate the development of cross-chain applications and services. It has been tested by at least 25 partners, including decentralized finance protocol Aave and decentralized liquidity platform Synthetix, who are now transitioning to the mainnet. As per a blog post from the Chainlink team, top decentralized finance protocols will be able to adopt CCIP.

The interoperability protocol has played a crucial role in Chainlink's partnership with SWIFT, a private network used by banks for international money transfers. In June, Chainlink and Swift revealed their plans to test the connection of numerous financial institutions to blockchain networks. SWIFT plans to use CCIP to link with various blockchains.

CCIP has the potential to connect all blockchains and bank chains. On Thursday, CCIP will be accessible to all developers across five testnets: Arbitrum Goerli, Avalanche Fuji, Ethereum Sepolia, Optimism Goerli, and Polygon Mumbai. The early access phase will initiate the protocol's shift to mainnet general availability, making the protocol live and accessible to everyone.

New Jobless claims

The Labor Department reported a consecutive weekly decrease in claims on Thursday. This sparked cautious optimism that the economy might avoid a recession this year. Recent data also showed inflation easing in June. The strength of the labor market is boosting wage growth, which in turn is supporting steady consumer spending. Initial claims for state unemployment benefits fell by 9,000 to a seasonally adjusted 228,000. This is the lowest level since mid-May and lower than the 242,000 claims forecasted by economists.

Unadjusted claims decreased by 326 to 257,976 last week. However, claims rose by 5,059 in California and by 4,616 in Georgia. Despite increases in South Carolina and Oregon, these were offset by significant declines in Michigan, Kentucky, Indiana, New York, New Jersey, Iowa, and Illinois. Despite a slower economy due to the Fed's significant interest rate increases, companies are holding onto workers. This is because they had difficulties finding labor during the COVID-19 pandemic. The Fed is expected to continue hiking rates next Wednesday after pausing in June. Despite a report from the Conference Board showing its Leading Economic Index dropping for the 15th consecutive month in June, economists are not overly concerned. They believe that the recession signal is not as strong as it appears, as most of the weakness is in a few sentiment-based indicators.

The claims data covered the week during which the government surveyed businesses for the nonfarm payrolls component of July's employment report. Claims fell during the June and July survey weeks. The economy added 209,000 jobs in June.

The number of people receiving benefits after an initial week of aid increased 33,000 to 1.754 million during the week ending July 8. These so-called continuing claims are low by historical standards, indicating that some laid-off workers are quickly finding work. However, the housing and manufacturing sectors continue to struggle. Existing home sales fell 3.3% in June to a seasonally adjusted annual rate of 4.16 million units, the lowest level since January. A shortage of houses on the market and higher mortgage rates are affecting sales. With supply tight, house prices are rising again on a monthly basis.

The Narrative

With this increased interest staking in Ethereum. Liquid Staking Derivatives have also grown. A new sector growing in the space is the Liquid Staking Derivatives finance space.

LSDfi builds on LSDs to create new market opportunities related to staking yields, validator monopolies, slashing risks, and even validator censorship. These mechanisms provide unique opportunities for users, promoting healthy competition among validators and preventing one party from monopolizing the consensus layer.

At the core of LSDfi are LSDs, LSDs are tokens that users receive when they stake their assets. These tokens enhance network security and allow users to earn an additional yield on top of their staking rewards. An essential feature of LSDs is that they provide users with flexibility and liquidity. This means users can still reap the benefits of staking crypto without locked assets. LSDfi represents staked assets and can be traded, loaned, restated, or used for arbitrage trading on secondary markets. To learn more about the potential of the market, read more here.

Crypto Market data

The last week has seen Bitcoin trading between $29,500 and $31,800. Since XRP has partially won its lawsuit, Bitcoin rallied to new yearly highs. The XRP lawsuit is extremely bullish for altcoins, As Bitcoin dominance has tumbled more than 5%. For Bitcoin to take the lead in the market, it has to break above $30,600. For now Bitcoin is trading sub $30,000, we are trading in a range. If we break above, we can trade as high as $35,000. If we break below $29,500, we are trading back at $28,000. If you want to position yourself, waiting for strength or a leverage flush is best. Till then no point in trying to force a trade.

Ethereum is holding the meme trendline. As long as Ether holds the trendline it should be trading higher. If Ether loses the trendline, I think it will trade as low as $1700 first. If $1700 is lost then $1450 is on the table.

The DeFi Sector

With Ethereum chopping around this week, the best performing chain is Optimism

Optimism has rallied significantly this week. The rally for Optimism has been due to the recent hype for the Ethereum Cancun update and EIP 4844. EIP-4844 aims to implement the temporary storage and retrieval of off-chain data through Ethereum nodes to meet the data storage needs of blockchain applications. After the Cancun upgrade, Ethereum L1 data will be moved into a new temporary 'Blob' storage. Blobs are cheaper with larger space, allowing Ethereum to handle more data, increase transactions per second (TPS), and reduce costs. In this case, EIP-4844 is expected to mitigate the cost of Layer 2 rollups. This cost reduction will ignite the breakout of the Layer 2 ecosystem, expanding Ethereum's advantages and narrowing the window of opportunity for other Layer 1 chains.

Best and worst performers

There seems to be a new narrative approaching crypto markets. Telegram Bots is a new narrative. Telegram bots for decentralized applications are automated programs that allow users to implement on-chain trading or farming strategies through tthe messaging app by linking wallets to the bots, or creating new Ethereum wallets within them. Unibot stands out as the most popular Telegram bot in this sector. Some other Notable Telegram bots are Lootbox,Genie and Wagie.

There isn't any narrative when it comes to the losers. These are all random coins that had previously spent time in the sun.

The week ahead

For now Bitcoin is trading sub $30,000, we are trading in a range. If we break above, we can trade as high as $35,000. If we break below $29,500, we are trading back at $28,000. If you want to position yourself, waiting for strength or a leverage flush is best. Till then no point in trying to force a trade. Ethereum is holding the meme trendline. As long as Ether holds the trendline it should be trading higher. If Ether loses the trendline, I think it will trade as low as $1700 first. If $1700 is lost then $1450 is on the table.

If you are not in any positions yet, it might be best for the market to show some strength. It's also great to start researching new narratives and projects. You can read those here.