Ether is not the only catalyst for Crypto Chaos. Watch Bitcoin after CPI data.

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Bitcoin and other cryptocurrencies pared gains on Wednesday after a big rally. But between a critical Ethereum blockchain network upgrade and influential macro data looming, it could be a bumpy day for crypto.

Bitcoin price has lost less than 1% in the past 24 hours, hovering around $30,000. The biggest digital asset recently broke above this psychologically important price level, briefly breaking above $30,500 on Tuesday to hit its highest level since last June, when crypto selling accelerated in a brutal bear market. Bitcoin has surged around 80% so far in 2023, and with the crypto hitting $30,000, it has once again sparked calls for a new bull market. But prices have yet to consolidate the gains.

The bulls’ attempts to build a sustained rally were not supported by the market, said Alex Kuptsikevich, an analyst at brokerage FxPro, noting that it appeared traders took profits from the surge in Bitcoin prices.

Despite Bitcoin’s price performance, crypto traders were largely focused on Ether, the second-largest digital asset and the token that underpins the Ethereum blockchain network. An overhaul of Ethereum, the Shanghai Upgrade, is set to complete later Wednesday, marking the biggest change to the ecosystem since last year’s merger.

In the merger, Ethereum was transformed from an energy-intensive Bitcoin-style proof-of-work system that awarded tokens to crypto miners using computers to solve increasingly complex puzzles into proof-of-stake. Under proof of stake, participating Ether holders lock up their tokens as collateral while they validate transactions and secure the network, earning interest in the process.

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The Shanghai upgrade will remove these tokens, increasing the prospect of selling pressure as some investors withdraw staked Ether and sell it. But the Shanghai upgrade, which will simplify staking, should also make trading more popular, which should support prices.

The Shanghai upgrade could unlock some Ether price instability, but ultimately it’s unlikely to take the dial away from increasingly buoyant investor sentiment, says Katie Evans , a decentralized finance expert at Swarm, a blockchain platform focused on commerce infrastructure. . We will likely see some volatility over the next few days and weeks, but this will pale in comparison to broader market movements which remain sensitive to macro news.

Indeed, digital assets remain highly sensitive to the macroeconomic outlook and in particular to the monetary policy trajectory of the Federal Reserve, which has significantly tightened financial conditions in an effort to contain high inflation for decades. A series of interest rate hikes from the Fed over the past year have been a major headwind for cryptos and equities, dampening demand for risk-sensitive assets and seeing bitcoin trading slow. phase with the Dow Jones Industrial Average and the S&P 500.

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The crypto rally so far this year has been driven by expectations that the Fed will soon become more dovish, potentially halting the pace of rate hikes in early May and possibly even cutting rates later in 2023, moves that should support Bitcoin.

Inflation data due Wednesday in the form of the Consumer Price Index (CPI) could push the narrative forward ahead of the May 2-3 meeting of the Federal Open Market Committee, the policy-setting group of the Fed. The trading session will also see the release of the minutes of the latest FOMC decision.

The stage is set for a volatile Wednesday as Shanghai Minutes, CPI and FOMC all await, said Vetle Lunde, an analyst at crypto research group K33.

Ether prices followed Bitcoin’s decline, dropping 2.5% to below $1,875. Smaller cryptos or altcoins were also weaker, with Cardano and Polygon each slipping 3%. Memecoins were not spared, with Dogecoin down 3% and Shiba Inu

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2% loss.

Write to Jack Denton at [email protected]

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