Fed policy and crumbling market sentiment could send the total crypto market cap back under $1T

After a painful thirty-five day period below the psychological threshold, the total crypto market capitalization surpassed $1 trillion on July 18. The next seven days saw Bitcoin (BTC), which traded at $22,400, and Ether (ETH), trade flat at $1,560.

Market cap total for crypto, USD billion Source: TradingView

The crypto capitalization was closed at $1.03 trillion on July 24, a slight 0.5% decrease in seven-day movements. The stability appears to be biased towards Ether and BTC’s flat performance and the $150 billion worth of stablecoins. The wider data does not show that seven of the top-80 coins experienced a drop in value of 9% or more during the period.

The chart supports $1 trillion, but it will take time before investors feel confident enough to invest in cryptocurrency. In the meantime, the United States Federal Reserve’s actions could have the greatest impact on price action.

The sit-and-wait mentality could also be indicative of macroeconomic events in the weeks ahead. Generally speaking, investors tend to expect worse data than they are expecting, which is beneficial for riskier assets such as cryptocurrency.

Investors expect the Federal Reserve to raise interest rates by 75bps at its July 26-27 policy meeting. On July 27, the U.S. central bank will release the second quarter gross domestic product (GDP), which is the broadest measure economic activity.

Confidence is not possible with $1 trillion

The Fear and Greed Index is a data-driven sentiment gauge that shows investors’ sentiment has improved since July 18. The indicator currently has 30 out of 100. This is an increase over the 20 it had on July 18, when it was in the “extreme fear zone”.

Crypto Fear and Greed Index. Source: alternative.me

It is important to note that traders’ spirits are not improving much despite the fact that the crypto market capitalization totaling $1 trillion was recaptured. Below are the winners/losers for July 17-24.

Weekly winners and losers from the top 80 coins Source: Nomics

After a remarkable 58% rally between July 12-18, Arweave (AR), faced a 20.6% correction. This was after the network file sharing solution had exceeded 80 terabytes of data storage.

Polygon (MATIC), which fell 11.7%, was triggered by the support of Vitalik Buterin, Ethereum co-founder, for the Zero-knowledge Rollups technology implementation. This feature is currently being developed for Polygon.

Solana (SOL), corrected 9% following concerns that the demand for smart contracts could be adversely affected by Ethereum’s migration to a proof of stake consensus.

Bullish positions are not attractive to retail traders

The OKXTether premium (USDT), is a useful indicator of China-based retail cryptocurrency trader demand. It measures the difference in peer-to-peer (P2P), China-based trades to the United States dollar.

An excessive buying demand can push the indicator over fair value at 100 percent. During bearish markets, Tether’s market offer floods and results in a 4% discount.

Tether (USDT) peer-to-peer vs. USD/CNY. Source: OKX

Since July 4, Tether has traded at a slight discount on Asian peer-to–peer markets. Retail traders did not buy excessively despite the 25 percent total market capitalization surge from July 13-20. These investors continued to leave the crypto market and seek shelter in fiat currencies.

To exclude any externalities that are specific to stablecoin markets, one should analyse crypto derivatives metrics. Perpetual contracts, for example, have an embedded rate that is charged every eight hours. This fee is used by exchanges to avoid imbalances in exchange risk.

Positive funding rates indicate that buyers (longs) are looking for more leverage. The opposite happens when shorts (sellers), require more leverage. Therefore, the funding rate turns negative.

On July 24, the accrued perpetual futures funding rate was 4% Source: Coinglass

There is a modest demand for long (bull) leveraged positions on Bitcoin, Ether, and Cardano in derivatives contracts. Even though a 0.1% monthly cost equals 0.5% weekly funding, it is still not unusual. Although the opposite happened with Ether Classic (ETC), Ether Classic, XRP, and Solana it is not enough for concern.

Investors’ attention is shifting to global macroeconomic data, and the Fed’s response in weakening economic conditions. The window for cryptocurrencies to be a viable alternative becomes smaller.

Even though the November 2021 peak is still at 67%, crypto traders are expressing fear and a lack in leverage buying. The lack of confidence in support for $1 trillion market capitalization by stablecoins and derivatives is evident.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.

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Eileen Wilson

Eileen Wilson –Technology and Energy My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.

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