Bitcoin’s Taproot Upgrade Explained – Privacy, Security, Scalability And Truly Decentralized Application Protocols

With Taproot only a few hours from activation, it seems like a good time to expand on the Taproot part from a previous ELI5 from a few months ago explaining what makes Bitcoin valuable, Lightning Network, and Taproot.

Taproot is arguably the biggest upgrade to Bitcoin’s base-layer protocol, introducing a new signature algorithm and scripting language. It brings a set of protocols that enhance Bitcoin’s privacy, security, scalability, fungibility and unlocks the infrastructure that will allow for seamless integration of L2/sidechain application protocols on Bitcoin.

Taproot was activated through the “speedy trial” approach. Under the speedy trial, miners were given three months to signal support for Taproot after the code was shipped. This required 90% of the blocks in a difficulty epoch (2016 blocks) to signal for Taproot. Activation was achieved at block height 687284 back in June.

Although some of the ideas included in the upgrade have been discussed for many years, the final iteration of Taproot was proposed by Bitcoin developer Gregory Maxwell in 2018. The upgrade is named after one of the three Bitcoin Improvement Proposals (BIPs) included in the upgrade – Schnorr Signatures(BIP 340), Taproot (BIP 341), and Tapscript (BIP 342).

By combining the Schnorr signatures with MAST (Merklized Alternative Script Tree) and introducing a new, slightly modified scripting language called Tapscript, Taproot expands Bitcoin’s smart contract capabilities while offering more privacy and security by making multi-signature transactions and complex smart contracts indistinguishable from regular bitcoin transactions.

Schnorr Signatures (BIP 340)

This part of the upgrade is a change to Bitcoin’s cryptographic digital signature algorithm. In asymmetric cryptography (public-private key pairs), digital signature algorithms define the generation of digital signatures using a private key that proves the ownership of a corresponding public key.

The existing Elliptic Curve Digital Signature Algorithm (ECDSA) of Bitcoin will not be replaced, but Schnorr signatures will be implemented in addition to it.

The Schnorr digital signature algorithm allows for something called key and signature aggregation using a protocol known as MuSig – multiple signatures created using multiple private keys corresponding to multiple public keys are combined to produce a single cryptographic digital signature corresponding to a single public key recorded on the blockchain.


Key and Signature Aggregation

In addition to Schnorr signatures and public keys being smaller than ECDSA signatures and public keys, aggregation further helps reduce the footprint of multi-signature transactions and complex smart contracts, which will take up the same space as regular single-signature transactions and as all transactions will look indistinguishable on the blockchain, the privacy benefits are fairly obvious. The privacy also extends to Lightning Network as on-chain transactions to open and close Lightning channels can no longer be identified from the keys and signatures in the channel or the script used.

Unlike ECDSA signatures, Schnorr signatures are provably secure and inherently non-malleable, meaning a third party cannot alter an existing valid signature under any circumstance. Segregated Witness (SegWit) addressed transaction malleability, Schnorr signatures address signature malleability.

There are also significant computational benefits for nodes, as key aggregation will allow nodes to verify signatures in batches, but these benefits can only be realized with time once Schnorr signatures become widely adopted.

Modifying the digital signature algorithm, per se, doesn’t affect anything on the blockchain. Schnorr is a different, more efficient way of generating digital signatures.

When Satoshi originally developed Bitcoin, Claus Peter Schnorr, the inventor of Schnorr signatures, had a patent on it. It is speculated that Satoshi may have otherwise opted for Schnorr signatures over ECDSA, which was a rigorously tested open-source alternative developed later, even if in a somewhat obligately inefficient manner as not to constitute an infringement of the patent, which expired in 2008.

There was a suggestion to use a different name, Discrete Logarithm Signatures was briefly mooted while adapting Schnorr signatures for Bitcoin as some people felt that Claus Peter Schnorr’s name shouldn’t be used in association with Bitcoin after he prevented the widespread use of such a powerful signature scheme for over 20 years.

Taproot (BIP 341)

This part of the upgrade leverages the Schnorr signature scheme to enable Merklized Alternative Script Trees (MAST) and defines the rules for a new output type based on SegWit known as Pay-to-Taproot (P2TR), which leverages the capabilities of Schnorr signatures.

MAST is a privacy solution that uses Merkle trees as part of the script’s structure to address some long-standing issues with transactions using Pay-to-Script Hash (P2SH) and Pay-to-Pubkey Hash (P2PKH) locking scripts where all possible spending conditions of a transaction are revealed.


P2TR Significantly Optimizes for Block Space Economy

P2TR combines two separate locking scripts – P2SH and Pay to Pubkey (P2PK), which is a simpler version of P2PKH that locks an output to the public key rather than a hash of the public key.

This allows P2TR outputs to be spent by either a script (smart contract) or a public key, but by allowing different spending conditions of the output to be individually hashed, only the specific spending condition met is revealed, and thanks to Schnorr signatures, they’re all indistinguishable on the blockchain.

Tapscript (BIP 342)

This part of the upgrade modifies Bitcoin’s scripting language to enable the new transaction types introduced by the two proposals above using new opcodes (operation codes), which are commands in Bitcoin scripts with predefined functions.

The goal of Tapscript is to make Schnorr signatures, batch verification, and signature hash improvements available to spends that use the script path as well as the public key path. It enables nodes to create and validate P2TR outputs.

Existing signature opcodes for ECDSA are modified to verify Schnorr signatures. Two existing opcodes that define verification of multi-signature transactions are disabled and replaced with a new opcode (OP_CHECKSIGADD) to enable batch verification of signatures.

Tapscript also allows adding new signature validation rules through softforks and introduces another new opcode (OP_SUCCESS) to enable the seamless introduction of future opcodes to Tapscript.

Impact of Taproot

Bitcoin’s script is deliberately limited and intentionally non-Turing complete in order to retain simplicity, security, and efficiency. Linear optimization is one of the main considerations for upgrades to the script to ensure decentralization – that any individual can economically self-host a node and trustlessly validate the blockchain.

Taproot is a forward-compatible soft fork, meaning old non-upgraded nodes will recognize the new blocks as valid. At the time of writing, more than 53% of ~ 60,000 Bitcoin nodes support Taproot. Non-enforcing nodes will reject transactions spending from P2TR outputs until they upgrade node software but will accept blocks containing transactions spending from P2TR outputs.

The significance of Taproot cannot be measured merely by what the above proposals enable for Bitcoin but what they represent for the future of Bitcoin by introducing new tools to make future upgrades easier to implement, simpler, safer, and more private.

Such upgrades waiting in the wings include cross-input signature aggregation, channel factories, state chains, and covenants, which enable advanced application protocols to be built on top of Bitcoin without placing any undue burden on full-node users, thereby preserving Bitcoin’s inviolable security and decentralization.

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Author: Lamps T

Austria to Treat Crypto like Stock for Taxation Purpose to “Reduce Prejudice Toward New Technologies”

Austria to Treat Crypto like Stock for Taxation Purpose to “Reduce Prejudice Toward New Technologies”

Austria is going to tax crypto assets like mainstream stock and bond investments to boost confidence in them.

Starting in March of next year, Austria will impose a 27.5% capital gain on digital currencies, including Bitcoin and Ether.

Austria’s Federal Ministry of Finance called this model the first of its kind and said this makes it fairer for investors. This initiative is part of a nationwide tax overhaul.

“We are taking a step in the direction of equal treatment, to reduce mistrust and prejudice toward new technologies,” the Ministry of Finance said Tuesday in a statement cited by Bloomberg.

Meanwhile, South Korea is preparing to levy a 20% capital gain tax on crypto assets starting January 2022.

While many Korean politicians have been pushing to delay the crypto tax, Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki wants a new taxation rule to go into effect on time.

Nam-ki said recently that “taxation on virtual assets should be done as scheduled.”

He pointed to the majority of G20 countries taxing virtual assets, saying “taxation is possible and confident.”

“If the ruling and opposition parties agree to suspend taxation by amending the law regardless of the government’s will, the government has no choice but to do so.”

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Author: AnTy

Abracadabra.Money’s (MIM) Explosive Growth Sends SPELL to New Highs, Over 8.7 Bln Tokens to be Burned

Much like the MIM’s 38x growth in TVL in the last three months, the SPELL token is also up more than 100x.

Lending protocol Abracadabra money has surpassed $4 billion in total value locked (TVL).

According to DeFi Llama, the $4.15 billion worth of assets amassed by the protocol is spread across different blockchains, including Ethereum (ETH), Arbitrum, Avalanche (AVAX), and Fantom (FTM).

Just two months back, there was only $270 million worth of assets locked on the platform that allows users to produce magic internet money (MIM), a stablecoin that can be swapped for any other traditional stablecoin.

Over the month of October, Abracadabra grew 23% of the original decentralized finance (DeFi) project MakerDao (MKR), which currently has $17.53 bln in TVL.

MIM, the stablecoin, has surpassed $2.36 billion in market cap and is now inching closer to TerraUSD’s (UST) $2.8 bln.

The lending protocol that allows users to borrow a stablecoin (MIM) with interest-bearing assets relies on arbitrage to maintain its peg. And despite a 3x in its monetary supply over just one month, MIM has been able to relatively maintain its peg ever since its launch.

The native token of the protocol, SPELL, thanks to the protocol’s growth, is constantly hitting new all-time highs since the last two months. Today, the $2.27 billion market cap coin rallied to $0.3125 and is up 10,222.2% since early August.

SPELL holders get to stake their tokens to receive 75% of protocol fees. Currently, there are over 7K SPELL holders versus 10K SPELL holders, with this ratio increasing, meaning a higher proportion of SPELL holders are now staking.

This growth has been driven by the higher weekly protocol fees, which recently totaled $1.7 million.

“No Brainer”

On Monday, a total of 8,711,260,380 SPELL tokens will also be burned, announced the team on Twitter.

The new weekly benchmark, the number of SPELL tokens to be allocated to farms every week, will now be moved from the current 1.45 bln SPELL per week to 1.16 bln SPELL.

Earlier last month, the team proposed implementing a 20% reduction across all farms, starting from November 1st.

“Given the depth of the protocol reserve, we do not feel the need to use these tokens for any particular marketing effort, team reward, or other actions,” said the team. As such, the emissions that were intended to be used are now burned.

As such, for this week, the protocol will release only 624,188,139 SPELL tokens across all pools.

Additionally, last week, the proposal to deploy Cauldrons and Degenbox on Binance Smart Chain (BSC) was also passed with 99.88% votes.

With BSC currently seeing 1.6 mln daily active addresses, $20 bln of TVL being on-chain, and Binance announcing a $1 billion fund to increase BSC adoption, the multi-chain project sees this as a “no brainer” opportunity to deploy on BSC.

“With Abracadabra moving to BSC, we could capture more TVL, new assets, and completely new users,” it said.

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Author: AnTy

Bitcoin Breaks Through $61,000 as Euphoria & ‘Greed’ Brings the Money Back In

Bitcoin is on the move, and it looks like there’s isn’t much resistance from here to the $65,000 all-time high.

Today, we went on to hit almost $61,500, and Bitcoins’ market cap surpassed $1.15 trillion. Currently trading above $61k, another move, and we’ll go straight for ATH. The leading cryptocurrency is now up more than 37% in October, so far.

This latest euphoria in the market is due to the first Bitcoin ETF of the US finally coming next week.

“ETFs open up a raft of avenues for people to gain exposure, and there will be a swift move to these structures,” said Charles Hayter, CEO of data firm CryptoCompare.

“It reduces the frictions for investors to gain exposure and gives traditional funds room to use the asset for diversification purposes.”

As we reported, there are very high chances that a Bitcoin Futures ETF would officially be trading before this month is over. Even the SEC is reminding investors to be careful when investing in a fund holding Bitcoin futures.

While ProShares Bitcoin ETF’s deadline for approval, decline, or delay is coming on October 18, Valkyrie filed an 8-A on Friday. SEC has to decide on Valkyrie’s ETF on October 25.

This is “yet another step indicating they (Valkyrie) think they will be going effective. That said, I’m still waiting on ProShares’ updated prospectus to get that ‘home free’ feeling,” said Eric Balchunas, a senior ETF analyst for Bloomberg.

Earlier today, Bloomberg also reported that the SEC is set to allow the Bitcoin ETF to trade next week, citing people familiar with the matter.

“It’s one of the final frontiers for mandate access,” said Joseph Edwards, head of research at crypto broker Enigma Securities.

“Plenty of Americans in particular have strings attached to how they deploy a lot of their wealth. It allows bitcoin to get in on the sorts of windfall that keep U.S. equities as consistently strong as they are.”

The approval of the ETF would certainly print a new ATH for Bitcoin.

“The move to $1m is preordained,” says Su Zhu, CEO, and co-founder of Three Arrows Capital.

In anticipation of the move, open interest on Bitcoin futures has increased to $22.29 billion, last seen in mid-April, according to Bybt. On CME, OI has already hit a new ATH at $3.36 billion, surpassing the February 21 high of $3.26 billion. As of writing, Bitcoin futures are trading at $60,950 on CME.

Funding rates on Bitcoin perpetual contracts are also spiking. Last month, it was negative, and currently, the highest is at 0.0446% on Deribit.

Additionally, the Crypto Fear & Greed Index is showing that ‘greed’ sentiments are back in the market with a reading of 79, last seen in late August.

In tandem with Bitcoin, Ether went up to trade above $3,800 while the total cryptocurrency market cap hovers around its early May peak of $2.55 trillion.

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Author: AnTy

It Isn’t Layer 1 or Layer 2, It’s Time for LayerZero

While layer 1 solutions like Solana (SOL), Avalanche (AVAX), Binance Smart Chain (BSC), Polkadot (DOT), and Cardano (ADA) are trying to compete with Ethereum, layer 2 solutions like Arbitrum and Optimism are here to solve the issue of high fees and congestion on Ethereum network and have been gaining traction.

But while layer 1s and layer 2s are busy outdoing each other, layer 0 has entered the picture.

Could it be the new fad? That’s to be seen, but this week, Bryan Pellegrino, co-founder, and CEO of LayerZero Labs, introduced LayerZero, an Omnichain Interoperability Protocol.

According to Pellegrino, LayerZero’s mission is simple — connect all dapps on all chains, have borderless connectivity (EVM, Non-EVM, L1, and L2), and make integration with LayerZero extremely simple for developers.

“Right now, bridges can be a mess,” noted Pellegrino as he pointed out different layer 1s have all independent pools of liquidity and that we don’t natively have the likes of AVAX <> Solana and Avax <> BSC.

Unlike this, LayerZero will allow for a single pool of unified liquidity bridged between all connected chains along with enabling native cross-chain lending, which means lend on one chain and borrow on another one seamlessly, and unified governance, that is, the ability to seamlessly swap AMM (A) -> AMM (B) regardless of chain, layer, or asset.

All of this will be enabled natively from day 1 on top of LayerZero, whose contracts are currently under audit and will “go live shortly after completion,” he said.

They are also building the first project entirely on the permissionless LayerZero protocol called Stargate, on which details will be shared soon.

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Author: AnTy

27 Percent of Americans Would Like Washington to Adopt Bitcoin: Survey

27 Percent of Americans Would Like Washington to Adopt Bitcoin: Survey

Bitcoin legalization as a topic is growing significantly, thanks in no small part to the developments in El Salvador.

Interestingly, a growing number of people in the United States are also looking forward to the day that Bitcoin will become legal tender in the country.

Democrats and Millenials More Receptive

Earlier this week, research and data analytics firm YouGov shared a research report showing that 27 percent of Americans would support the government making Bitcoin legal tender.

The report explained that 11 percent of respondents strongly support the move, while another 16 percent would “somewhat support” it.


The YouGov poll had taken responses from 4,912 residents in the country. It shared a divide among Democrats and Republicans – the two major political parties in the country. As the report showed, about 29 percent of Democrats would either strongly support or somewhat support recognizing Bitcoin as legal tender in the country. This compares slightly favorably to the 26 percent of Republicans who answered the same way.

Besides political inclinations, the poll also divided respondents based on demographics. Unsurprisingly, respondents between the ages of 25 and 34 are much more supportive of the Bitcoin legalization move, with 44 percent of them showing a positive response. Interestingly, 43 percent of baby boomers (people between 57 and 75) opposed the idea.

El Salvador: Changing the Narrative

As expected, the poll is coming off El Salvador’s crypto law, which officially confirms Bitcoin as legal tender in the country. President Nayibb Bukele has faced heavy criticism from both home and abroad over the law, but he has so far remained resolute in his commitment to the leading cryptocurrency.

Bitcoin was eventually incorporated into El Salvador’s economy on September 7. Since then, reports have confirmed that adoption in the country has ramped up. Popular fast-food chain McDonald’s has reportedly started accepting Bitcoin for payments. The El Salvadorian government has also purchased 200 BTC as part of a $150 million Fund earmarked to spur Bitcoin adoption.

Besides restaurants and the government, Bancoagrícola, El Salvador’s largest financial institution, has partnered with digital payments gateway Flexa to accept Bitcoin payments. As part of the agreement, Bancoagrícola’s customers will be able to make dollar-denominated credit card payments via Flexa or other Lightning Network-enabled wallets. The payments won’t attract any fees, and they will cover things like merchant goods, loans, etc.

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Author: Jimmy Aki

“Innovative New Products” like Bitcoin Mini-Futures Leads to an Increase in CME Profits

“Innovative New Products” like Bitcoin Mini-Futures Leads to an Increase in CME Profits

Chicago Mercantile Exchange Group (CME), a popular regulated futures platform used by institutions, reported an increase in its second-quarter profit spurred by innovative products like micro futures of Bitcoin and oil that attracted the retail investors along with a drop in expenses and a rise in hedging against price moves.

The overall average daily volume of the largest futures exchange operator was up 5% “as economies continued to recover during the first half of the year,” which saw trading increasing across a majority of asset classes.

On an adjusted basis, CME earned $1.64 per share, more than analysts expected. Quarterly revenue meanwhile dipped 0.26% to $1.18 billion, according to the financial report for Q2.

CME has been recently rolling out micro-futures that are a fraction of the size of regular contracts aimed at smaller, sophisticated, and active traders.

The exchange launched micro bitcoin futures in early May, which are one-tenth of a bitcoin, compared to the regular contracts, which are worth five bitcoin. Within the first six days of their launch, more than 100,000 micro-bitcoin futures were traded on CME.

Meanwhile, 450,000 micro WTI contracts were traded by 6,200 users in the first 11 trading days, and over 2,600 of them have never traded accrued products with CME in the past. It was the most successful commodity product launch in its history.

“We have built a $100 million a year business so far that didn’t exist just a couple of years ago with our micro product,” said Chief Financial Officer John William Pietrowicz about the micro contracts.

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Author: AnTy

Ethereum Fees And Daily Transactions Spike Thanks to Shiba Inu (SHIB), Tether & Uniswap

Much like in May, Shiba Inu is the biggest gas guzzler on the second largest network, as it launched ShibaSwap. NFTs through Axie Infinity and OpenSea, and MetaMask are also the contributors.

Daily transactions on the Ethereum network are now back over 1.35 million, which had fallen to just above 1 million, but still down from the 1.7 million peak in early May.

Fees are also seeing a spike, with average transaction fees making their way towards $10 after falling to $2.33 in late June. At its peak in May, it soared past $70.

Additionally, gas fees are recording an uptick to 55 Gwei after falling and remaining in single digits for a couple of weeks in June.

According to Etherscan, Tether and Uniswap are the biggest gas guzzlers today, followed by addresses that belong to the Shiba Inu coin project. At 5th and 9th place again is the SHIB project, all of which together accounts for more than 18% usage in the past 24 hours.

Much like in May, on Tuesday, the SHIB project was the biggest gas guzzler and was also at the 3rd and 5th spot, as noted by crypto trader Joe McCann.

The popular dog coin is actually launching a decentralized exchange (DEX) called ShibaSwap. In a single day, ShibaSwap attracted $1 billion in total value locked (TVL).

The token SHIB is currently trading at $0.00000874, down 77% from its all-time high of $0.00003791 hit two months back.

Ethereum co-founder Vitalik Buterin was the one who sent the SHIB prices crashing in May after selling 50% of its supply (about $6 billion worth at the time) which was sent to his wallet unbeknownst to him, in place of burning the tokens. Vitalik actually gave these coins to charity, saying he doesn’t want that kind of power over a project.

Amidst this, some critics point out that aping into ShibaSwap for a four-figure APR might be a risky venture, given that its smart contract allows a single address to migrate the deposited funds.

“TLDR: All the staked funds can be rugged by the devs at any moment #WarOnRugs,” said Valentin Mihov, ex-CTO at data provider Santiment.

Since then, the project has addressed the concern and made changes, moving the owner to multisig.

“ShibaSwap devs reached out and transferred the owner role to a 6/9 multisig. They also informed they plan to deploy a timelock,” said Banteg, a core developer at DeFi bluechip Yearn Finance.

Besides Shiba Inu, the popular NFT game Axie Infinity is the fourth-largest gas guzzler. As we reported, while the NFT space has been cooling down, the play-to-earn game Axie Infinity is seeing the highest volume at $84.1 million, 769% higher than Q1 2021 and reaching over 4,700 daily unique on-chain users, an increase of 360.61% from the previous quarter.

It also had a breakout month in June, earning a record $12.2 million in revenue, and already in the first five days of the month, it has generated $9.2 million.

The AXS token has surged 300% in less than two weeks and is up 2,145% YTD.

NFT marketplace OpenSea and popular Ethereum wallet MetaMask, which earned $7 million in the past 30-days (4th highest) and $31.7 million in the last 3-months (3rd highest), are also among the top ten gas guzzlers on the second-largest network.

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Author: AnTy

Bitcoin Price Trading Analysis July 1: BTC Still In Accumulation But Potential for A Bullish Breakout

On the face of it, June may seem like it was an uneventful month for BTCUSD. The pair closed the month at $35,037, down 6 percent from the closing price of May.

Price action remained somewhat stagnant, and trading volume was modest compared to the first five months of this year. But this is what accumulation phases typically look like, rife with indecision at large for several weeks, if not a few months.

While the second quarter of this year turned out to be the worst in 2 and a half years since Q4 2018, there are reasons to suggest that, despite the sharp correction, we’re likely in a cooling-off period similar to mid-2013 and mid-2017 before resuming the second half of this post-halving bull cycle. It’s also worth noting that this negative quarter follows the first successive quarters of the price surge in excess of 100%, and BTCUSD is still up 15% YTD while Gold is down 7% YTD amidst fears of rampant inflation.


A 2-month long head and shoulders pattern dating back to March with the head formation coinciding with the 3.618 Fibonacci extension broke down in mid-May around the 2.618 extension, securing the target of $33,000 fairly quickly and finding support at the 1.618 extension. This first extension at $29,890 is critical for the pair to avoid revisiting the long-term R/S flip at $19,666.


Contrary to what Michael Burry posted on Twitter, the entire formation with a neckline around $30,000 is not a head and shoulders pattern. There are several technical reasons to refute it, but two very fundamental – the head formation should not be more than 2/3rds higher than the shoulder formations measured from the neckline and, more importantly, the extension of the trend line preceding the left shoulder formation should cut across the reaction low preceding the right shoulder formation.

While being known for his notorious 2008 “big short” call when the impending catastrophe was arguably obvious, although not expressly acknowledged, to any fundamentalist in Wall Street, Burry has had more misses than hits in his career as a doom-monger or, as he styles himself, a Cassandra.

The Wyckoff accumulation phase identified in my previous analysis is still valid, only that we now have a W bottom spring with a bullish RSI divergence, pending a retest of the support lines. Should this hold, we may enter the final phase of this accumulation with a hash rate expected to return to the Bitcoin network after difficulty retarget in a couple of days. With difficulty set to adjust down by 25 to 30% for the next epoch, we should see a lot of hash power enticed to get back online.


Much of the talk in June was regarding the dreaded death cross, and while it’s unlikely to have a long-term impact on the price, we’ve seen the price at which the death cross occurred turn out to be a level of strong resistance in the last couple of weeks. Fibonacci retracement levels with the current bottom of $31,597 correspond perfectly with previous support levels now potentially flipping to resistance, 200ma, and resistance lines within the Wyckoff trading range. This is typically seen as confirmation of price bottom.


Looking at on-chain data from Glassnode, we can see that supply from miners has sharply gone down in recent weeks, which may also be a consequence of reduced hash rate, and accumulation addresses, which are long-term holder addresses, are on a sharp uptrend since mid-June when the price briefly dropped below $30,000.



Market Summary

  • Key support levels – $33,000, $31.600
  • Key resistance levels – $36,000, $39,100
  • Market outlook – Accumulation with potential for a bullish breakout

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Author: Lamps T

Macro Market Impact: Bitcoin, Stocks, Gold, and USD Reacts Ahead of FOMC Meeting

While PPI, just like the consumer price index, had its historical increase, retail sales figures actually fell in May, indicating the economy isn’t that hot. Markets are eagerly awaiting Fed chair Jerome Powell’s post-meeting news conference to decide where to next.

The Federal Reserve is to release new forecasts following its two-day meeting on Wednesday.

While some economists expect the Fed to mention tapering of the bond-buying program, much detail on the same isn’t expected.

Allianz chief economic adviser Mohamed El-Erian recently said in an interview that Fed officials had put themselves into a corner with their “backward-looking monetary new framework” that will make it very difficult for them to take their foot off the pedal.

Meanwhile, the producer price index (PPI), which measures the average prices of goods and services produced, rose 6.6% during the 12-month period ending in May.

Just like the consumer price index saw its biggest increase since 2008, the PPI figure was also the greatest in history ever since the Bureau of Labor Statistics first started calculating it in 2010.

The Fed, however, is maintaining that “inflation will be transitory” and that they’re “not thinking about raising rates.”

Based on annualized 2Y/2Y CPI reading, which gets rid of YoY denominator issues, “inflation is rising, but it’s nothing to get too concerned about yet,” also wrote Jeff Dorman, Chief Investment Officer at digital assets management firm, Arca.


Interestingly, retail sales figures, which fell by 1.3% in May, showed that despite all the new money pumped into the market, the economy isn’t that hot. Analyst Mati Greenspan in his daily newsletter Quantum Economics wrote,

“This will have to be a topic of discussion in the upcoming Fed meeting tomorrow, where they will undoubtedly be asking themselves whether the juice is worth the squeeze.”

Effect on the Market

As we reported, the market is eagerly awaiting Fed chair Jerome Powell’s post-meeting news conference and how they react to the high inflation. Ahead of this meeting, Bitcoin has dropped under $39k.

S&P 500 and tech-heavy Nasdaq are unsure currently following their new peaks on Monday. Gold started the day by going down, continuing from last week, but is now seeing a slight rise in value at $1,860 per ounce. The US dollar index is also up above 90.5.

While “BTC exhibits a modest positive correlation to equity markets and gold. Its correlation to US 10y Treasury futures is very slightly negative,” noted Jonathan Cheesman, head of over-the-counter and institutional sales at crypto derivatives exchange FTX.

For this reason, statisticians often argue that BTC is not driven by macro, but “I would argue that while the daily correlations are obscured by crypto volatility, macro markets do have an impact. Particularly when there are substantial shifts in policy. Crypto has certainly enjoyed a significant tailwind from the policy response to the covid disruption,” he added.

According to hedge fund billionaire Paul Tudor Jones who is a Bitcoiner and is eyeing the meeting if the central bank officials talk down inflation and fail to take action, that would be a “green light to bet heavily on every inflation trade,” which involves BTC, gold, and commodities.

Raising interest rates, on the contrary, won’t be good for the stock market and even crypto. However, with crypto already having its 50% pullback, “digital assets are not nearly as overvalued as the stock market is right now,” said Greenspan.

With Bitcoin seen as a hedge against Fed money printing and the inflation, it causes, “if the Fed does crash the market, there’s a real chance that bitcoin, and possibly other cryptocurrencies, may be seen as safe havens,” Greenspan added.

Arca’s CIO is of similar opinion as he points out the great macro setup for digital assets — Fed balance sheet printing new all-time highs, low rates and declining US dollar, and the equity volatility index (VIX) back to post Covid lows.

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Author: AnTy