From a bearish perspective, there is a reasonable possibility that the cryptocurrency market will enter a descending channel (or wedge) on August 15 after it failed to surpass the resistance of the total market capitalization of $1.2 trillion. Even if the pattern is not yet clear, the past two weeks have not been positive.
For example, the total market capitalization of $940 billion on August 29 was the lowest in 43 days. The deteriorating conditions were accompanied by a sharp correction in the traditional markets, the heavy Nasdaq Composite Index fell 12% since August 15 and even WTI oil prices fell 11% from August 29 to September 1.
Investors turned to the dollar and US Treasuries after Federal Reserve Chairman Jerome Powell reiterated the bank’s commitment to do so Containing inflation by tightening the economy. As a result, investors took profits from riskier assets, causing the US Dollar Index (DXY) to reach its highest level in more than two decades at 109.6 on September 1. The index measures the strength of the dollar against a basket of major foreign currencies.
More importantly, the flow of regulatory news remains largely unfavorable, especially after US federal prosecutors requested internal records from crypto exchange Binance to look deeper into potential money laundering and recruiting US clients. Since late 2020, authorities have been investigating whether Binance has violated bank secrecy lawAccording to Reuters.
Crypto investor sentiment is back in bearish territory
The risk-off stance caused by the Fed’s tightening has led investors to anticipate a broader market correction and negatively impact the growth of stocks, commodities and cryptocurrencies.
The data-driven Fear and Greed Index peaked on August 14th with the index reaching a neutral reading of 47/100, which wasn’t very promising either. On September 1, the scale reached 20/100, the lowest reading at 46, and is usually considered bearish.
Here are the winners and losers from the past seven days as the total cryptocurrency capital fell 6.9% to $970 billion. while Bitcoin (BTC) and ether (ETH) is down 7% to 8%, and a few medium-cap cryptocurrencies are down 13% or more in the period.
eCash (XEC) jumped 16.5% after lead developer Amaury Séchet announced the launch of Avalanche following the consensus on the eCash Mainnet, expected on September 14.
NEXO gained 3.4% after allocating an additional $50 million to it buyback programgiving the company more discretion to buy back its native token on the open market.
Helium (HNT) lost 29.3% after core developers suggested Getting rid of his blockchain for Solana. If passed, HNT, IOT, helium-based MOBILE tokens and data balances (DC) will also be transferred to the Solana blockchain.
Avalanche (fax) down 18.2% after CryptoLeaks Unverified video released Kyle Roche, partner at Roche Freedman, offered, saying he could sue Solana, one of Avalanche’s biggest competitors, on behalf of Ava Labs.
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 China-based peer-to-peer (P2P) trading 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 October 30, the price of Tether on peer-to-peer markets in Asia reached a premium of 0.4%, the highest level since mid-June. Oddly enough, this move occurred while the total cryptocurrency market cap was down 18.5% since August 15. The data shows that there was no panic selling from retailers, as the index remains relatively neutral.
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.
The perpetual contracts reversed a moderate downtrend as the accrued funding rate was negative in each case. The current fee is caused by an uneasy situation with high demand from leveraged short selling, and those betting on a lower price. However, even the negative weekly funding rate of 0.70% for Ethereum Classic (ETC) was not enough to discourage short sellers.
Negative regulation and macroeconomics define emotions
The negative weekly performance of 6.9% should be the least of investors’ concerns at the moment because regulators have been targeting major crypto exchanges. For example, they claim that altcoins should have been registered as securities and that this sector was used to facilitate money laundering.
Moreover, weak sentiment metrics and unbalanced leverage data indicate investors are worried about the effects of the global recession. Although Tether data in Asian markets shows no signs of a retail sale due to panic, there is no evidence that traders have a bullish appetite as the total cryptocurrency market cap approaches a 45-day low. Thus, the bears have reason to believe that the current bearish structure will continue in the coming weeks.
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