Earlier this morning, the long-awaited Ethereum merge was finalized.

Ethereum has successfully transitioned into the proof-of-stake (PoS) model, leaving Bitcoin as the only proof-of-work (PoW) blockchain of scale.

This is a major turning point, particularly in an ideological sense. The debate between the PoS and PoW frameworks will only intensify following this transition.

Risk markets tanked yesterday after the release of CPI data for August, as inflation numbers ran hot against expectations.

Crypto markets especially felt the heat, with Bitcoin dropping 10% on the day and Ethereum posting an 8.5% drop.

With the CPI print behind us, yet another volatile event is on the horizon. That's the Ethereum merge, which is on track to happen in the next 24 hours.

In the past, we've mentioned that the merge is merely a narrative, as Ethereum is just tracking with the equity markets.

While this still holds true, it would be natural to expect a brief decoupling between Ethereum and equities, given the skewed positioning within the futures markets.

Yesterday, we talked about the likelihood that Ethereum funding would dip in parabolic fashion leading to the merge.

And, since then, funding has taken a dramatic hit.

We're a day away from the anticipated Ethereum merge, by which the network will transition from a Proof-of-Work to a Proof-of-Stake model.

Investors are clearly hedging their positions moving into this event, with Ethereum perpetual swaps trading with rather bearish funding rates.

And Ethereum quarterlies have been trading firmly in backwardation, pointing to a strong flight to hedging positions.

To close the week, we saw a remarkable rally that drove Bitcoin prices up more than 10%. This was the largest single-day gain going back to February 28.

This came after Bitcoin tested the shelf of support near 19,000, while equity markets bounced on an important inflection point.

In last week's letter, we pointed out that buyers needed to step up and defend these levels, which they clearly have.

This is the video recording of our September 9, 2022, All Star Charts Crypto Weekly Strategy Session.

It's been a pretty lousy market out there...

There's been so little to discuss in the way of data points that'd pull us from the doldrums.

Strazza sent a brief note in our Slack chat to ask how many cryptos were below their June-July lows. This is when things were at their worst -- 3AC just got margin-called, and there were mass liquidations.

Upon quantifying this, only 4% of our universe of 316 coins are below their closing June-July lows.

That's 13 coins, not a whole lot.

Yesterday, we identified a number of developments in crypto and in old-school markets, suggesting it's time for buyers to step in if further damage is to be avoided.

While Bitcoin is in the process of testing support, we've seen some short-term signals of strength within the altcoins. This is a positive, but crypto assets need legacy markets to bounce here if this recent strength is to persist.

If equities can’t begin to build a bullish shape right here and now, we expect further downside. Recent US dollar strength likely needs to subside, too.

So, with our stage set, let's look at it through a more actionable lens.

What are the setups? What are we buying? What are we selling?

This market hasn't thrown us much in the way of productive data points in recent months.

"Messier for longer" has been and continues to be our prognosis for crypto right now. Last Monday, we concluded by arguing the following:

Following Bitcoin’s sell-off, this seems like a logical place for the crypto complex to bounce or at least chop for a few weeks, especially given stretched sentiment in the futures markets.

Because the probabilities of short-term longs are rather low given the macro backdrop, we’re not going to get overly cute and tactical trying to define a setup at this support.

The higher-probability outcome appears to be further chop.

In other words, it’s just more of the same.

There haven't been any significant developments that'd sway us to carry a more bullish tone.

Bitcoin and the vast majority of the asset class are still chopping about, while macro markets have been dragged down in the most recent risk-off move within the context of a strong dollar.

This is the video recording of our September 2, 2022, All Star Charts Crypto Weekly Strategy Session.

Getting a fresh batch of monthly candlesticks has to be one of our favorite elements in our process.

Being forced to zoom out provides us with the insightful context of what truly matters -- the primary trend.

Remember, a lot of the work we do is simple trend identification. Instead of trying to catch the uncertain market top/bottom, we're always looking to position ourselves in the path of least resistance.

Trying to catch and time market extremes is difficult and it comes with a great deal of uncertainty.

Understanding market structure, on the other hand, will give you a great deal of conviction in your overall outlook.

From the Desk of Louis Sykes @haumicharts

We hate to sound like a broken record. But "patience" is the name of the game in a tape like this.

Looking at the asset class from the top down, it's clear we're still in the basing process. There is perhaps no better visualization of this dynamic than our broad-based altcoin index.

Incorporating just over 300 coins, this equally weighted index tracks all USDT spot pairs on Binance, adjusted for stablecoins, leveraged coins, and other outliers.

Over the last two weeks, we've made the case for short-term caution and patience. This approach has proven timely, with Bitcoin correcting 20% over this period.

As it currently stands, Bitcoin lies on a shelf of support near its most recent pivot lows, around the 18,000, 19,000 neighborhood.

Bearish sentiment seems to be approaching extreme levels, with both Ethereum and Bitcoin quarterlies trading backward.

At the same time, the macro backdrop continues to be a risk-off picture.

The S&P 500 has lost a key level of support, while the US dollar, interest rates, and crude oil all look prime to begin a new leg higher.