The crypto market has extended its bullish momentum despite recent tailwinds, Ethereum continues to lead this recovery. The second crypto by market cap is trading at $1,600 with a 35% profit last week.
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Trading company QCP Capital share a market update claiming that the current bullish price action has been a “pleasant surprise to all”. This price action started following the latest printout of the US Consumer Price Index (CPI); a metric used to measure inflation.
The CPI is at a 40-year high, which is expected to have a negative impact on the crypto market. The reverse has happened, the trading company claims, as market participants expect inflation to decline in the coming months.
This potential drop in inflation could provide room for risky assets to continue their rally and persuade the US Federal Reserve (Fed) to rule out a 100 basis point (bp) interest rate hike. The financial institution will announce its decision on July 27. QCP Capital said:
Currently, a 20% probability of 100 basis points is still factored in, but we believe 75 basis points is the maximum the Fed will do. So expect another boost as 100 bps is completely exhausted.
Ethereum is leading the way as there is more clarity around the upcoming “Merge,” an event meant to combine this network’s runtime layer with its consensus layer. Thus, consolidating Ethereum’s migration to a Proof-of-Stake (PoS) consensus protocol.
“The Merger” was tentatively scheduled for September, which contributed to the change in general sentiment in the crypto market and supported this rally. The bullish price action, QCP Capital said, was “felt keenly in the options market.”
The sector has seen a “rush” to buy call contracts (calls) for the September expiry. In other words, options traders are optimistic about the potential impact “The Merge” will have on Ethereum.
Can Ethereum extend the current rally?
Conversely, options markets point to potential exhaustion for Ethereum in the near term. QCP Capital sees increased sell calls in the price of ETH and believes insolvency announcements from other companies could work as tailwinds for the second-largest crypto by market capitalization.
Part of the contagion triggered by the default of crypto hedge fund Three Arrows Capital (3AC), which failed to honor their counterparties’ billions in debt, many companies have been negatively impacted. This includes Celsius, BlockFi, Voyager, and Genesis.
These companies had to shut down operations at certain levels, with new companies announcing that they had been affected by 3AC which was released almost weekly. Crypto exchange Zipmex suspended withdrawals yesterday, and there have been growing rumors that other companies are taking similar action.
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QCP Capital said:
Although markets have been bullish, they may not yet be completely free of credit contagion. We have strengthened our biased position to the downside and are keeping slightly long gamma and vega (longer term options).