Rising US Fed Funds rate, higher than expected inflation, and geopolitical uncertainty led many investors to flee to the US Dollar. The flight to safety drove global equities down over 9% for the month and over 26% year-to-date (in USD terms). The digital assets market did not fare all that badly and had a drop of a tad over 4% for the month.

Weighing down on the crypto markets was also the concern about the long arm of two of the US financial regulators, the CFTC and the SEC. Despite the macro and regulatory clouds, the sun was shining on the Ethereum protocol. In the wee hours of Sept 15, Ethereum completed its Merge, switching from its previous Proof-of-Work consensus mechanism to Proof-of-Stake. Both the regulatory actions and the Merge deserve some attention in this month’s commentary.

In early Aug, U.S. Treasury’s OFAC added Tornado Cash to its Specially Designated Nationals (SDN) list, throwing into question crypto’s promise of permissionless peer-to-peer interactions. August may be considered a short-term reversal after the strong July rally, but the OFAC action will have long-term consequences which are only beginning to play out.

Crypto markets have rallied in line with the improvement in macro assets. One of the most important upcoming events, The Merge, is finally nearing its completion.

June was volatile for the digital assets market. But with evidence indicating that marginal liquidity seekers may be exhausted, a strong foundation may be forming.