On the upside, there is a fair chance that the crypto market will enter a downward channel (or wedge) on August 15, failing to break above the $1.2 trillion total market capitalization resistance. Although the pattern is not yet evident, the past two weeks have not been positive.
For example, the total market cap of $940 billion seen on August 29 was a 43-day low. The deteriorating conditions led to a sharp correction in traditional markets, and the tech-heavy Nasdaq composite index fell 12% since August 15 and even WTI oil prices fell 11% from August 29 to September 1.
Investors sought refuge in the dollar and U.S. Treasuries after Federal Reserve Chairman Jerome Powell announced the bank’s commitment to rein in inflation by strengthening the economy. As a result, investors took profits in riskier assets, sending the U.S. dollar index ( DXY ) to a more than two-decade high of 109.6 on Sept. 1. The index measures the dollar’s strength against a basket of major foreign currencies.
After all, the regulatory news flow isn’t great, especially after US federal prosecutors requested internal records from crypto exchange Binance to look deeper into money laundering and recruiting US clients. As of late 2020, authorities have been investigating whether Binance violated bank secrecy laws, Reuters reported.
Crypto investor sentiment has once again entered bearish territory
The risk-on outlook caused by the Federal Reserve’s tightening has led investors to expect a broader market correction and is weighing on growth stocks, commodities and cryptocurrencies.
The data-based sentiment indicator hit a high reading of 47/100 on August 14, which does not look very promising. On September 1, the gauge hit 20/100, the lowest reading in 46 and typically considered a bearish level.
Below are the winners and losers for the past seven days as total crypto capitalization fell 6.9% to $970 billion. While Bitcoin (BTC) and Ether (ETH) are down 7 to 8%, a few mid-cap altcoins are down 13% or more during the period.
eCash (XEC) jumped 16.5% after lead developer Amaury Séchet announced the expected launch of the Avalanche post-consensus for September 14th eCash Mainnet. The update aims to bring 1-block finality and increase protection against 51% attacks.
NEXO gained 3.4% after committing an additional $50 million to the buyback program, which made the company more prudent to buy back its native stock on the open market.
Helium (HNT) lost 29.3% after major developers proposed issuing its own blockchain to support Solana. If passed, helium-based HNT, IOT and MOBILE tokens and Data Credits (DCs) will be transferred to the Solana blockchain.
Avalanche (AVAX) is down 18.2% after CryptoLix released an unverified video showing Roche Friedman partner Kyle Roche saying he may sue Solana, one of Avalanche’s top rivals, on behalf of Ava Labs.
Most tokens performed negatively, but retail demand in China improved slightly.
The OKX Tether (USDT) premium is a good measure of China-based retail trader demand. It measures the difference between China-based peer-to-peer (P2P) trading and the United States dollar.
Overbought demand tends to push the indicator 100% above its fair value, and during depressed markets, the Tether market is flooded with supply and results in declines of 4% or more.
On October 30, the price of Tether in Asia-based peer-to-peer markets reached a 0.4% premium, the highest level since mid-June. The surprising move comes as the crypto’s overall market value has fallen by 18.5% since August 15. The data shows that there was no panic selling from retail traders, making the index relatively neutral.
Traders should also analyze futures markets to avoid outliers specific to the Tether instrument. Perpetual contracts, also known as reverse swaps, have an embedded rate that typically pays out every eight hours. Exchanges use this fee to avoid exchange risk imbalances.
A positive funding ratio indicates that longs (buyers) want more leverage. However, the opposite happens when shorts (sellers) demand more energy, causing the money supply to turn negative.
Fixed-term contracts reflected a mildly bearish sentiment as accumulated funding rates were negative in all cases. The current payments have led to an unstable situation with high demand, which plays on the price. Still, the 0.70% negative weekly funding rate for Ethereum Classic (ETC) was not enough to discourage short sellers.
Negative regulatory and macroeconomic pin down sentiment
The negative 6.9% weekly performance means investors should be less concerned now that regulators are targeting major crypto exchanges. For example, they say that altcoins should be registered as securities and the sector is used to facilitate money transfers.
Moreover, weak sentiment indicators and an unbalanced consumption index have investors worried about the effects of a global recession. Although Tether data in Asian markets showed no sign of retail panic selling, there was no evidence that traders had much appetite as the overall crypto market cap hit a 45-day low. Therefore, bears have reason to believe that the current bearish formation will continue in the coming weeks.
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