Total crypto market capitalization has dropped to $1 trillion support. Crypto analyst Marcel Pechman says weak stablecoin demand and a largely underfunding rate reflect the negative mood of traders. We prepared Marcel Pechman’s Bitcoin and altcoin market analysis on metrics for our readers.
Cryptocurrency market cap down
The rising wedge formation in the crypto market on August 17 was broken. Afterwards, the total crypto market cap rapidly declined towards $1 trillion. The bulls’ dream of recoupling the $1.2 trillion support on June 10 most recently took further away.
Total crypto market cap ($billion) / Source: TradingViewcryptocoin.com Worsening conditions are not unique to crypto markets. The price of WTI oil is down 28% from the $122 peak seen on June 8. All of these are signs that investors are feeling less confident about the Fed’s policies.
Recently, Goldman Sachs US equity strategist David Kostin noted that the risk-reward for the S&P 500 is bearish after a 17% rally since mid-June. Upside inflation surprises will require the Fed to tighten the economy more aggressively, according to Kostin. This will negatively affect valuations.
Crypto investor sentiment turns from ‘neutral to bearish’
The risk-averse attitude brought on by rising inflation has caused investors to expect additional interest rate hikes. This will reduce investors’ appetite for growing stocks, commodities and cryptocurrencies. As a result, traders will take refuge in dollars and inflation-protected bonds in times of uncertainty.
Crypto Fear and Greed Index / Source: Alternatif.meThe Fear and Greed Index hit 27/100 on August 21, a 30-day low for this data-driven sentiment indicator. The move confirms that investor sentiment has moved away from its neutral 44/100 reading on Aug. This reflects the fact that traders are relatively afraid of the short-term price action of the crypto market.
Meanwhile, total crypto capitalization fell 12.6% to $1.04 trillion. In this context, the winners and losers of the last seven days are below. Bitcoin (BTC) is down 12%. A handful of mid-cap altcoins fell 23% or more during this period.
Weekly winners and losers among the top 80 tokens / Source: NomicsEOS is up 34.4% after its community surged in the ‘Mandel’ hard fork scheduled for September. The update is expected to end the relationship with Block.one completely. Chiliz (CHZ) gained 2.6% after Socios.com invested $100 million in a 25% stake in Barcelona Football Club’s new digital and entertainment arm. Celsius (CEL) fell 43.8% after filing for $2.85 billion in funding mismatches in its bankruptcy filing on Aug.
Most tokens, including Bitcoin, performed negatively
The OKX Tether (USDT) premium is a good indicator of demand from China-based retail crypto traders. It measures the difference between China-based peer-to-peer (P2P) transactions and US dollars. Excessive purchase demand tends to pressure the indicator above 100% of the fair value. Also, Tether’s market offering is flooded during bearish markets. Thus resulting in a 4% or higher discount.
Tether (USDT) peer-to-peer and USD/CNY / Source: OKXTether (USDT) price in Asian-based P2P markets reached a two-month high on August 21 with a 0.5% discount. However, the index stays below the neutral-bearing range. This indicates low demand from individual purchases.
Traders also need to analyze futures markets to exclude Tether-specific externalities. Perpetual contracts, also known as reverse swaps, have an embedded rate that is typically charged every eight hours. Exchanges use this fee to avoid currency risk imbalances.
A positive funding rate indicates that long-term (buyers) demand more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage. This causes the funding rate to turn negative.
Accumulated perpetual futures funding rate as of August 22 / Source: CoinglassPerpetual contracts reflected a neutral sentiment after Bitcoin and Ethereum had a relatively stable funding rate. Current fees resulted from a balanced situation between leveraged longs and shorts. As for the remaining altcoins, even the 0.40% negative weekly funding rate for Ethereum Classic (ETC) wasn’t enough to deter shorters.
20% drop likely for bitcoin and altcoin market
According to derivatives and trading indicators, investors are moderately worried about a steeper market correction. At Tether’s slight discount when priced in Chinese yuan. In addition, the absence of buyers is evident in the near-zero funding rates seen in the futures markets.
Total crypto capitalization has now tested the critical $1 trillion support, Given this situation, these neutral to bearish market indicators are alarming. If the Fed continues to tighten the economy effectively to quell inflation, the Bitcoin and altcoin market is likely to retest its annual low of $800 billion.
