Data Shows Bitcoin And Altcoins Are At Risk Of Falling 20% To New Yearly Lows
After breaking the rising wedge formation on August 17, the total market capitalization of cryptocurrencies rapidly dropped to $1 trillion, and the bulls’ dream of reclaiming the $1.2 trillion support, last seen on June 10, is far away.
The deteriorating conditions are not limited to the cryptocurrency markets. The price of West Texas Intermediate crude oil fell 3.6% on August 22, down 28% from its peak of $122 seen on June 8. by 3.16%. These are all signs that investors are feeling less confident about the central bank’s policies of asking for more money to hold these debt instruments.
Recently, David Kostin, chief US equity strategist at Goldman Sachs, stated that risk and reward for the S&P 500 is skewed to the downside after a 17% rise since mid-June. According to Kostin’s client note, inflation surprises to the upside require the US Federal Reserve to tighten the economy more aggressively, negatively impacting valuations.
Meanwhile, extended shutdowns that were supposed to contain the spread of COVID-19 in China and real estate debt problems caused the People’s Bank of China (PBOC) to cut the five-year loan base rate to 4.30% from 4.45% on August 21. The move occurred a week after the Chinese central bank cut interest rates in a surprise move.
Cryptocurrency investor sentiment on the brink of ‘neutral to bearish’
The risk aversion caused by rising inflation has led investors to expect additional interest rate hikes, which in turn will reduce investor appetite for growth stocks, commodities and cryptocurrencies. As a result, traders are likely to seek refuge in the US dollar and inflation-protected bonds during periods of uncertainty.
The Fear and Greed Index reached 27/100 on August 21, the lowest reading in 30 days for the data-driven sentiment gauge. The move confirmed that investor sentiment was shifting away from the neutral reading of 44/100 on August 16, reflecting the fact that traders are relatively fearful of short-term price action in the cryptocurrency market.
Here are the winners and losers from the past seven days as total cryptocurrency capital fell 12.6% to $1.04 trillion. while Bitcoin (BTC) is down 12%, and a few medium-cap cryptocurrencies are down 23% or more in this period.
EOS It jumped 34.4% after its community turned bullish on the steady “Mandel” cross slated for September. It is expected to be fully updated Ending the relationship with Block.one.
Chiliz (CHZ) is up 2.6% after Socios.com invest $100 million for a 25% stake in the new digital and entertainment arm of FC Barcelona.
Celsius (CEL) is down 43.8% after an Aug. 14 bankruptcy report that showed a $2.85 billion mismatched money.
Most tokens performed negatively, but retail demand in China improved slightly
OKX rope (USDTThe premium is a good measure of retailer demand in China. It measures the difference between peer-to-peer (P2P) trading based in China and the US dollar.
Excessive buying demand tends to pressure the index above fair value at 100%, and during bear markets, it floods Tether’s market supply and causes a discount of 4% or higher.
On August 21, the price of Tether in Asia-based peer-to-peer markets reached a two-month high, and is currently at a discount of 0.5%. However, the index remains below the neutral to bearish range, indicating lower demand from retail buying.
Traders should also analyze the futures markets to rule out the externalities of the Tether instrument. Perpetual contracts, also known as reverse swaps, have a built-in rate that is typically charged every eight hours. Exchanges use these fees to avoid misalignments in exchange risk.
A positive funding rate indicates that longer contracts (buyers) require more leverage. However, the opposite situation occurs when short positions (sellers) require additional leverage, causing the financing rate to turn negative.
Perpetual contracts reflected a neutral sentiment after Bitcoin and Ether maintained a relatively flat funding rate. The current fee resulted from a balanced situation between long and short leveraged buys.
As for the remaining altcoins, even the weekly negative funding rate of 0.40% for Ether Classic (ETC) was not enough to discourage short sellers.
Likely a 20% drop to retest annual lows
According to derivatives and trading indices, investors are moderately concerned about a sharper correction in the global market. The absence of buyers is evident in Tether’s slight discount when priced in CNY and near-zero funding rates in the futures markets.
These neutral to bearish market indicators are worrisome, as the total capitalization of the cryptocurrency is currently testing the crucial $1 trillion support. If the US Federal Reserve actually continues to tighten the economy to suppress inflation, the odds of cryptocurrencies retesting their annual lows of $800 billion are high.
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