Last week turned out to be a rollercoaster for digital asset holders, with $BTC’s price up 20% as high as $22,680 after five consecutive days of gains between Sept. 8 and Sept. 13. The rally caught some traders off-guard as a few market participants anticipated a return of the risk-asset appetite in such a volatile environment.

However, the comeback was short-lived as the double-digit price increase that sent $BTC to new monthly highs was followed by a stomach-churning drop at the release of the U.S. August inflation report.

The inflation numbers came above analysts’ expectations, crashing the crypto market, with Bitcoin plunging $2,300, or 10%, on the news during the post-release trading hours.

While the U.S. CPI release was expected to show inflation moderating with the month-over-month consumer price change estimated at -0.1%, it revealed another uptick in the inflation rate. Posting a 0.1% increase since July (8.3% from a year earlier vs. 8.1% expected), the inflation print is likely to keep the Fed on track for another big rate hike this month.

With the new data, the narrative that the peak inflation was in June and inflation would cool down turned irrelevant. According to reports, investor consensus sees an 81% chance of a 75 basis point rate hike at the Fed’s September meeting, and a 19% chance of a 100 basis point hike, dashing hopes of more dovish Fed moves, as suggested by the Fed funds futures data.

Given today’s big drop in risk-on asset prices, the market has already priced in a 0.75% increase. So another sharp fall next week is less expected unless the Fed goes for a 100 bp rate hike. This seems an unlikely scenario now, but the market showed us that forecasts sometimes might be wrong.

Ethereum Merge Is Here

The Ethereum merge is finally here, but what’s next? 

Around September 15, Ethereum transitioned to the Proof-of-Stake (PoS) consensus mechanism. The network upgrade is expected to bring down the network’s energy consumption by more than 99.9%.

However, “a set of events happening almost simultaneously – including the inflation report release – has the potential to reduce the positive effect of Ethereum’s transition from PoW consensus to PoS.”

This is exactly what we saw yesterday when Ether tumbled from trading at $1,647 to $1,473. However, Ether has the potential to strike back ahead of the merge.

Overall, the merge will not change much for builders and users on the network. The merge wouldn’t increase the network’s TPS by 100,000 or bring the transaction fees down 99% overnight. The transition to a full-fledged and efficient PoS Ethereum network is a long process with multiple stages post-merge, including the introduction of sharding.

The Surge, which is expected to split the Ethereum chain into 64 shard chains; the Verge, which should improve the network’s scalability with node optimization; the Purge aims to improve data storage; the Splurge for “all of the other fun stuff” are other milestones on Ethereum’s evolution path. Therefore, Ethereum’s future dominance in the web3 space is not a question of the merge itself.

What Will Happen to PoW?

Ethereum’s transition away from the Proof-of-Work consensus mechanism obviously means the end of the era for Ether miners. Since mining Ethereum will no longer be an option, proof-of-work miners must seek alternatives.

The noticeable price action seen among the PoW coins in recent weeks suggests a few destinations for miners to put their mining hardware to work. The most popular option is Ethereum Classic.

$ETC has been among the best-performing coins for several weeks, with ETC up more than 20% over the last 20 days and 185% since mid-July, according to CoinMarketCap data. Since Jul. 18, According to CoinMarketCap data, Ethereum Classic has consistently outperformed Ethereum since mid-July, causing the price of $ETC to double in relation to $ETH.

Mining Ravencoin ($RVN), a Bitcoin network fork focused on the issuance of digital assets, is another choice for Ethereum miners who want to keep working after the merge. Data from CoinMarketCap shows that in the final days leading up to the Ethereum merger, Ravencoin’s value nearly doubled. Another contributor to RVN’s price surge was the listing of Ravencoin perpetual futures on the FTX exchange.

A go-to destination for another group of miners would be the ETHPoW chain, which was expected to launch within 24 hours after the Ethereum Merge on Sept. 15 but was postponed due to some technical issues. The network is rumored to airdrop its $ETHW tokens to $ETH holders at launch. The forked version of $ETHW has already been listed on a number of exchanges, including Poloniex, Bitfinex, and Coinbase.

Some more exotic options include the Ergo (ERGO) blockchain, recommended by Cardano’s founder Charles Hoskinson. The network’s ERGO token advanced 62% from $3.2 on Sept. 1 to a local high of $5.2 on Sept. 6 before returning to the levels around $4.5, where it is trading at the time of writing.

Overall, the rally in the PoW tokens may be close to its peak. With token prices lifted by three-digit numbers, timing your trades to gain profit becomes a rather complicated task.

$LUNC’s Rise on the News of a Governance Proposal

On the news of a governance proposal to impose a flat 1.2% fee on all on-chain transactions in the Terra Classic network, $LUNC experienced a parabolic rise at the start of September. The proposal received support from large crypto exchanges such as Huobi Global, KuCoin, and MEXC.

First, some traders got excited about the potential deflation in the network that would bring down the supply of $LUNC, creating the first wave of buying power for the coin and pushing its price higher. Then, the traders who noticed the unusual price action jumped in, further spurring the $LUNC buying spree.

The native coin of the rising-from-the-dead network skyrocketed by 500% from the $.00009 levels, where it waffled since early August to a local peak of $0.00586 seen on Sept. 8. Renewed trader interest in the coin with billions of $LUNC trading volume on centralized exchanges, propelled Terra Classic’s market capitalization above the $3 billion threshold last week, according to CoinMarketCap data.

Terra’s UST Classic ($USTC) stablecoin and Mirror ($MIR), the token of a synthetic asset trading built on Terra Classic, followed a similar pattern to $LUNC, adding 18% and 65% over the last seven days, respectively.

The hype vanished quickly, though, and the $LUNC rally ended abruptly. The coin price has already dropped nearly 35% from the local high. However, the actual introduction of the 1.2% fee, scheduled on Sept. 20, may become an ultimate ‘sell-the-news’ event for Terra Classic’s coin.

In essence, Terra Classic is still a dead network with no real developer activity and thus no sustainable future and interest from the crypto community to support the large trading volumes and supply burning. Any $LUNC purchases for the long term, especially at the current prices, come as highly risky moves.

Once the daily burn stabilizes, it will likely skew to the more conservative scenario. It will likely not be enough to offset the $162,000 daily circulating token inflation once the $LUNC trading volume returns to normal.

Top 7-day Gainers

• LUNA +43.7%
• RVN +40.9%
• CEL +33.6%
• EVMOS +21.6%
• ATOM +13.5%

Top 7-day Losers

• LUNC -46.7%
• BIT -17.7%
• HNT -15.0%
• RPL -13.7%
• EOS -11.1%

CPI Ruins the Party

$BTC and the crypto market have rebounded significantly off the recent $18,000 low, making a great rally to almost $23,000 and liquidating late shorts at the support. The highly anticipated Ethereum merge also fueled the rally, with $ETH futures open interest rising from $8 to $9 billion in 1 week. $BTC futures open interest denominated in $BTC reached an all-time high of 310,000+ BTC.

The CPI report has driven down S&P, BTC, and the whole crypto market, wiping out gains made during the past six days. At the time of writing, BTC is trying to hold crucial local support of $19,500. If $BTC fails to reclaim $21,000, we might see a large number of long liquidations in the market as total crypto futures open interest went above $30 billion for the first time since May.

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