Well, we’ve survived another month. Before we go any further, give yourself a pat on the back. Surviving is the most crucial component of making it. Be a turtle, not a hare.
Moving on.
August really wasn’t the most action-packed month (besides the TC debacle, of course). That’s not a bad thing by any means. I’m sure that we could all agree that a quick breather was needed.
The way I look at August is as the calm before the storm. It’s the prelude to what is shaping up to be one of the most important months in crypto’s history. As we will discuss in this week’s update, the number of catalysts coming our way in September and the rest of Q4 is genuinely mind-boggling.
So seriously, take these last few days of August and touch some grass. Once September starts, it’s full steam ahead, my friends.
Without further adieu, let’s jump into this week’s update.
Jackson Hole Death Blow
The crypto markets traded sideways for much of the week. Bitcoin and Ethereum were trading within tight ranges until the most powerful man in crypto gave a short speech on Friday. That man is none other than Fed Chairman Jerome Powell, and that speech was part of the annual economic symposium in Jackson Hole, Wyoming.
Anticipation was high for J-Pow’s speech because it would clarify the Fed’s position on inflation. Specifically, it would point us to one of two doors:
Behind Door #1, we have a dovish speech in which he alludes to rate hikes slowing down, making the markets go brrrr.
Behind Door #2, we have a hawkish speech in which he alludes to the need to continue the inflation fight, causing the markets to take a nosedive.
Let’s see which door J-Pow ended up choosing:
Ow.
As you can see, Powell chose Door #2. In his speech, Powell spoke of the need to continue the fight against inflation until it’s under control and warned of “some pain” as this fight continues.
This sucks, but it’s not a surprise. Anybody who thought the Fed would cut back on rate hikes with inflation above 8% was smoking the strongest hopium in the world. Sorry bro, your longs aren’t going to pay off. Now that this is officially off the table, they have been forcefully woken out of fairytale dreamland and into the real world with the rest of us.
I want to take some time to talk about the Fed and crypto more generally. I’ve observed many on Crypto Twitter (CT) struggling to come to terms with the importance of the Fed, and I think I know why.
The oft-repeated aphorism “don’t fight the Fed” has recently become a bit of a meme on CT. It’s regarded as a mid-wit thing to say. A piece of sideline cope.
I understand why crypto people think this. It doesn’t make sense why an alternative financial system is so dependent on another man’s speeches. Furthermore, as we will get to in the second half of this article, there are also many exciting things due to be released soon. Why, then, should we be so beholden to the Fed?
I’m not going to LARP as a macro expert and try to come up with an exact answer. Many people far smarter than I have already written extensively on that. What I do know, however, is that crypto is indisputably bound to the Fed. To say otherwise would be foolish.
If we accept the premise that crypto is tied to the Fed, why are you trying to force trades while the Fed is hawkish? You’re not Warren Buffet or George Soros. Odds are you’re one of the majority of traders who lose money. Just wait till the Fed turns dovish again. Last time it was dovish you could close your eyes, pick a random coin on DexScreener, and make money.
Seriously, just sit and wait for easy mode.
Don’t fight the Fed.
Incoming Catalysts
Although prices probably aren’t going to rebound until the Fed reverses course, this is a great time to be in crypto if you’re in it for the tech. These are the four things I’m tracking the closest.
The Merge
I’ve written about this ad nauseam the last two weeks, so I’ll spare you all another Merge recap. The Merge hasn’t been the shoo-in trade many thought it would be, and it’s created a lot of FUD over whether it’s actually bullish for ETH’s price. My suggestion would be to fully analyze both sides before making a move. Hal Press and Jordi Alexander posted fantastic articles on Bankless discussing The Merge, with Hal taking the bull case and Jordi taking the bear case. They are both brilliant dudes, so this is an excellent place to start.
Arbitrum Nitro/Odyssey
Many believe that Arbitrum is the L2 with the most exciting ecosystem, and I find it hard to disagree with them. GMX, Dopex, PlutusDAO, Vesta, Mycelium, Jones DAO, Umami, 3xcalibur, y2k finance, etc., etc. It’s a true murderer’s row of innovative protocols.
Luckily for Arbitrum enjoyoooors, these protocols have some key catalysts coming up over the next month or so.
In addition to these application-level catalysts, Arbitrum the protocol also has some major upgrades on tap. First is the release of Arbitrum Nitro on August 31st, which will make Arbitrum faster and cheaper. Second is the resumption of the Arbitrum Odyssey, which sets the stage for the eventual Arbitrum token airdrop.
Things are looking up for Arbitrum. If you’re not yet deployed, airdrop legend Olimpio has a good guide on how to farm the airdrop.
Protocol Native Stablecoins
I read a super interesting article the other day on protocol native stablecoins. The basic idea is that because of the risks of centralized stablecoins and the lack of a dominant decentralized stablecoin (no, DAI doesn’t count), protocol native stablecoins will grow in popularity.
We are already seeing this play out with Curve’s crvUSD, Aave’s GHO, Dopex’s DPXUSD, and Redacted’s Dinero.
To me, there are two main takeaways. One is that this trend will likely continue until (if?) a scalable decentralized stablecoin is invented, or at least I hope it is. To continue relying on centralized stablecoins would be so stupid, but I digress. Second is that if this trend continues, Curve and Frax benefit big-time. Curve because they are the dominant stableswap and Frax because they have the most attractive basepool option.
Speaking of Frax…
The Frax-enstein
Frax is building a damn monster of a DeFi product. Sam and the devs are mad scientists, and they are cooking like their life depends on it.
As well summarized in this article, Frax currently has four products in development:
FraxSwap, the first constant product AMM with an embedded TWAMM for trustlessly executing large trades over extended periods.
FraxLend, which is a lending platform that allows anybody to create a market between any pair of tokens with a Chainlink data feed.
frxETH, which is the Frax version of liquid-staked ETH.
canFRAX, which is a bridge focused on being the most secure redemption method for stablecoins back to Ethereum Mainnet.
That’s a lot to take in, and that doesn’t even include the aforementioned Frax Basepool. I can’t suggest reading the Frax Docs enough. The level-up in DeFi IQ is worth it alone.
Other Things To Keep An Eye On
As I did last week, I’ll wrap this article up with some other things to keep an eye on over the coming weeks and months. As always, DYOR.
Coinbase is entering the ETH liquid-staking game with cbETH.
GMX, AAVE, and Uniswap are all now earning more fees than Bitcoin, further fueling the fat-app thesis.
MakerDAO continues to make moves into RWA (real-world assets).
That concludes this week’s article. If you remember nothing else from this article, please remember this: don’t fight the Fed.