Retail Still Not FOMO – Crypto Resilience Depends on the Fed

The ascending triangle pattern is driving the total crypto market cap to $1.2 trillion. The problem with this 7-week setup is that volatility fades, which could last through late August. From there, the pattern could break in either direction, but futures market data. and USDT show that the bulls lack the confidence to catalyze a rally.

Total crypto market capitalization (billion USD)
Total crypto market capitalization (billion USD) | Source: TradingView

Cautious investors await more macroeconomic data on the state of the economy as the US Federal Reserve (Fed) raises interest rates and pauses its asset purchase program. On August 12, the United Kingdom announced that its gross domestic product (GDP) fell 0.1% year-on-year. Meanwhile, inflation in the UK hit 9.4% in July, the highest figure in 40 years.

China’s property market prompted credit agency Fitch Ratings to issue a “special report” on August 7 to quantify the impact of the prolonged predicament on the likely economy. weaker in this country. Analysts predict the wealth management industry and small steel and construction companies will be the most affected.

In short, investors in risk assets are eagerly waiting for the Fed and central banks around the world to signal that policy tightening is coming to an end. On the other hand, expansionary policies are more conducive to scarce assets, including cryptocurrencies.

Sentiment improves to neutral after 4 months

The risk offloading due to rising interest rates has spread bearish sentiment among investors since mid-April. As a result, traders are reluctant to allocate to volatile assets and seek shelter through U.S. Treasury bills, although the yield did not offset inflation.

Cryptocurrency Fear & Greed Index
Cryptocurrency Fear & Greed Index | Source: alternative.me

The fear and greed index hit 6/100 on June 19, near the lowest ever recorded on this data-driven sentiment gauge. However, investors moved out of the “extreme fear” zone in August when the indicator held the 30/100 level. On August 11, the index finally entered the “neutral” zone after a 4-month downtrend.

Here are the winners and losers of the past 7 days as the total crypto cap grew 2.8% to $1.13 trillion. While Bitcoin is up just 2%, some mid-cap altcoins have gained 13% or more during this period.

Weekly winners and losers among the top 80 coins
Weekly winners and losers among the top 80 coins | Source: Nomics

Celsius (CEL) rose 97.6% after Reuters reported Ripple Labs’ interest in acquiring the now-bankrupt Celsius Network and its assets.

LINK is up 17% after announcing on August 8 that it will not support upcoming Ethereum PoW forks that occur during the Merge.

AVAX is 14.6% higher after being listed for trading on Robinhood on Aug.

In contrast, CRV lost 6% of its value after the name server for the Curve.Fi website was compromised on August 9. The team quickly resolved the issue, but the front-end hack caused some damage to the users.

The market may be recovering, but retail traders remain indifferent

The OKX Tether (USDT) spread is an effective measure of retail trader demand in China. The indicator measures the spread between peer-to-peer (P2P) transactions in China and the US dollar.

Overbought demand tends to push the indicator above fair value at 100%, and during bear markets, the market floods USDT and causes a 4% discount or higher.

USDT Peer to USD/CNY
USDT Peer to USD/CNY | Source: OKX

On August 8, the price of USDT in peer-to-peer markets in Asia fell 2%, signaling moderate selling pressure from retail investors. More importantly, the index hasn’t improved while total crypto capitalization is up 9% in 10 days, showing that retail investors don’t have much demand.

To rule out external factors affecting the USDT instrument, traders must also analyze the futures market. Perpetual contracts, also known as inverse swaps, have rates that are typically calculated every 8 hours. Exchanges use this fee to avoid imbalance of exchange risk.

A positive funding rate indicates that Long (buyers) require more leverage. However, the opposite situation occurs when the Short (seller) requests more leverage, causing the funding rate to turn negative.

Funding rate perpetual futures contract accumulated on 12/8
Funding rate perpetual futures contract accumulated on 12/8 | Source: Coinglass

Perpetual contracts reflect neutral sentiment after Bitcoin and ETH kept funding rates slightly positive (bullish). The current fees imposed on the bulls are not worrisome and lead to a leveraged Long – Short equilibrium.

Further resilience depends on the Fed

According to trading and derivatives indicators, investors are less inclined to increase their positions at current levels, as shown by the discounted USDT in Asia and the absence of positive funding rates in the futures market.

These neutral-to-bearish market indicators are worrisome, given that the total crypto cap is in a 7-week uptrend. Worry over China’s property market and further Fed tightening are the most likely explanations.

For now, the chances of the ascending triangle breaking above the $1.25 trillion mark look low, but more macroeconomic data is needed to gauge the direction of central banks.

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