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Crypto Week: Coinbase Blockchain and Growing Pessimism in the Market

American crypto exchange Coinbase is launching its own second layer blockchain under Base brand. The network is operating within the Ethereum ecosystem using the Optimism protocol. Such add-ons allow users to complete transactions much faster and cheaper than in the first layer blockchain, while also gaining access to all its advantages.

Base network is thought to be populated by 110 million verified clients of Coinbase in 100 different countries that have $80 billion on their accounts. Native token Base is unlikely to be issued, as U.S.-based Coinbase will hardly be allowed by the Securities and Exchanges Commission (SEC) to do this after considering BUSD as a security. Binance itself will no longer offer BUSD trades starting from March 13. Instead, the price of Optimism coin is rising on the news that part of the Base transaction commissions will be stored in the Optimism Collective community. More of such L2 (second layer) blockchains on Optimism technology are expected to emerge in the future, as this technology allows user to easily relocate their assets inside the ecosystem without any extra costs.

The crypto market situation is worsening as many traders are betting on a wider and stronger rebound, while it appeared to be weaker in scale than in 2019. Active traders are pumping altcoins increasing their market cap by $100 billion during the recent rebound. Some of the altcoins are priced at 100-200% above January 2023 levels, and may be interesting for short trades.

Mixed economic development in the United States has put additional pressure on risky assets, including crypto. Durable goods orders dropped by 4.5% month-on-month in January, while so called Core durable goods orders rose by 0,8%, the most for the last ten months. Suggestions about the nearing recession for the United States and a weaker Dollar in this regard seem to be premature before the release of the U.S. labour market and inflation data for February. It is interesting to see that the U.S. economy is looking more resilient, as was expected given the Federal Reserve’s (Fed) aggressive tightening actions and rhetoric. High consumer activity, which includes activity in the real estate sector, may only extend the period of high prices, making it possible to likely compare the current situation to that of the 1970s, when the Fed kept its high interest rates in place for quite a while. Morgan Stanley agrees with this as it does not expect a U-turn in the Fed’s monetary policy before March 2024.

Thus, the recovery of the crypto market in 2023 should not be expected. Risky assets are simply not in demand amid expensive borrowing as investors prefer to deal with high-grade assets like bonds or value stocks. BTC prices are expected to tumble below $21,000 per coin towards $17,000.