Crypto market cap continues to decline as the dollar index reaches 20-year highs
3 min read
The Crypto market cap has continuously declined to its lowest point in more than a month. The current descending formation is likely to persist in the coming weeks, so bears are justified in believing that it will continue.
Despite the fact that the pattern is not yet readily apparent, during the last few weeks, nothing positive has happened. The investment environment has been adversely affected by growth stocks, commodities, and cryptocurrencies and there is concern about the impact of a global recession based on weak sentiment metrics and imbalanced leverage data.
Based on the crypto market’s failure to break above the $1.2 trillion market capitalization resistance on Aug. 15, there’s a fair probability that it entered a descending channel (or wedge). It is still difficult to discern a clear pattern in the last few weeks, regardless of whether there has been any positive development.
There has been an increase in demand for bearish bets based on derivatives metrics in the past week, despite a decrease in crypto market capitalization.
Crypto market cap, in billions of dollars. Source: TradingView
On Aug. 29, the $940 billion total cryptocurrency market cap had been at its lowest point in 43 days. Traditional markets have also been adversely affected by the worsening conditions; the tech-heavy Nasdaq Composite Index has dropped 12% since Aug. 15, while WTI oil prices fell 11% between August 29 and September 1.
As a result of Jerome Powell’s assurance that the Federal Reserve is committed to containing inflation through tightening the economy, investors sought shelter in the dollar and the United States Treasuries. The US Dollar Index (DXY) reached its highest level in more than two decades on September 1 at 109.6, as investors took profits on riskier assets. A basket of foreign currencies is used to measure the strength of the dollar.
Furthermore, regulatory newsflow remains predominantly unfavorable, particularly since U.S. federal prosecutors requested Binance’s internal records to investigate possible money laundering and recruitment of U.S. customers. A Reuters report states that Binance has been investigated since late 2020 for possible violations of the Bank Secrecy Act.
Crypto market cap: Crypto investor sentiment re-enters the bearish zone
Investing in growth stocks, commodities, and cryptocurrencies have been negatively impacted by the risk-off attitude caused by Federal Reserve tightening.
An index measuring fear and greed in the crypto space. Source: Alternative.me
Indicators of data-driven sentiment hit a neutral 47/100 reading on Aug. 14, which was neither promising nor encouraging. A reading of 20/100 is typically considered a bearish level, and it is the lowest reading in 46.
As the total crypto market cap declined 6.9% to $970 billion in the past seven days, here are the top losers and winners. There was a decline of 7% to 8% for Bitcoin (BTC) and Ether (ETH), but 13% or more for some mid-capitalization altcoins.
Among the top 80 coins, there are weekly winners and losers. Source: Nomics
In reaction to the announcement that Avalanche post-consensus would be available on the eCash mainnet on Sept. 14, eCash (XEC) rose 16.5%. It is aimed at bringing 1-block finality and increasing protection against 51% attacks. In a move that gives NEXO more discretion to repurchase its native token on the open market, the company committed $50 million more to its buyback program.
In response to core developers’ proposal to ditch Helium’s own blockchain for Solana’s, Helium (HNT) lost 29.3%. In addition to Helium-based HNT, IOT, and MOBILE tokens and Data Credits (DCs), the Solana blockchain will also support Helium-based HNT, IOT, and MOBILE tokens.
CryptoLeaks published an unverified video showing Kyle Roche, a partner at Roche Freedman, stating that he could sue Ava Labs’ rival Solana. Avalanche (AVAX) declined 18.2% on the news.
Most tokens performed negatively, but retail demand in China slightly improved
A good indicator of retail crypto trader demand in China is the OKX Tether (USDT) premium. A P2P trade measured against the dollar is referred to as a P2P trade. It is common for excessive buying demand to push the indicator above fair value at 100% in bull markets, and it causes a discount of 4% or more in bear markets due to flooded market offers.
Peer-to-peer comparison of Tether (USDT) and USD/CNY. Source: OKX
It was the highest premium since mid-June for Tether on Asia-based peer-to-peer markets on Oct. 30. It’s curious to note that the move occurred during a period in which the crypto market capitalization has fallen 18.5% since Aug. 15. The index remains relatively neutral, showing no panic sales by retail traders.
Tether instrument-specific externalities must also be taken into consideration when analyzing futures markets. An embedded rate is usually charged every eight hours for perpetual contracts, also known as inverse swaps. These fees are used by exchanges to avoid imbalances in the exchange rate.
Longs (buyers) require more leverage when there is a positive funding rate. Negative funding rates are caused by shorts (sellers) requiring additional leverage.
The cumulative perpetual futures funding rate was calculated on Sept. 1. Source: Coinglass
Despite the accumulated funding rate always being negative, perpetual contracts displayed a moderately bearish sentiment. A volatile market and a tendency to bet on a price drop triggered the current fees. Ethereum Classic (ETC)’s weekly funding rate was negative by 0.70%, but that wasn’t enough to discourage short sellers.
Negative regulatory and macroeconomic pin-down sentiment
Due to regulators targeting major crypto exchanges, investors should not be concerned about the negative 6.9% performance. It claims, for instance, that altcoins should have been registered as securities and that money laundering has been carried out in the sector.
Investors are also concerned about a global recession based on weak sentiment metrics and imbalanced leverage data. The total crypto market cap approached its lowest level in 45 days despite no signs of retail panic selling in Asian markets. Therefore, bears should expect the descending formation to continue for a few more weeks.
