Crypto Markets Rebounded and Sentiment Improved, but Retail Has No FOMO Yet

An ascending triangle formation pushed the total crypto market cap towards the $1.2 trillion level. The problem with this 7-week setup i...


An ascending triangle formation pushed the total crypto market cap towards the $1.2 trillion level. The problem with this 7-week setup is the declining volatility, which could last until the end of August. From there, the trend can break either way, but data from the Tether and futures markets show that the bulls lack conviction to catalyze a breakout higher.

Total crypto market capitalization, in billions of dollars. Source: Trading View

Investors are cautiously awaiting further macroeconomic data on the state of the economy as the US Federal Reserve (FED) raises interest rates and suspends its asset purchase program. On August 12, the UK recorded a contraction in gross domestic product (GDP) of 0.1% year-on-year. Meanwhile, inflation in the UK hit 9.4% in July, the highest figure recorded in 40 years.

China’s property market prompted credit agency Fitch Ratings to release a “special report” on August 7 to quantify the impact of prolonged distress on a potentially weaker economy in China. Analysts expect asset management and smaller construction and steelmaking businesses to suffer the most.

In short, investors in risk assets are eagerly waiting for the Federal Reserve and central banks around the world to signal that policy tightening is coming to an end. By contrast, expansionary policies are more favorable to scarce assets, including cryptocurrencies.

Sentiment improves to neutral after 4 months

The risk attitude caused by rising interest rates has instilled bearish sentiment among cryptocurrency investors since mid-April. As a result, traders have been unwilling to invest in volatile assets and have sought refuge in US Treasuries, even though their yields do not offset inflation.

Crypto fear and greed index. Source: alternative.me

The Fear and Greed Index hit 6/100 on June 19, near the lowest reading ever for this data-driven sentiment gauge. However, investors moved away from the “extreme fear” reading in August, with the indicator holding at the 30/100 level. On August 11, the metric finally entered a “neutral” zone after a 4-month downtrend.

Below are the winners and losers for the past seven days, as the total crypto market capitalization rose 2.8% to $1.13 trillion. While bitcoin (BTC) only exhibited a 2% gain, a handful of mid-cap altcoins jumped 13% or more during the period.

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

Celsius (CEL) jumped 97.6% after Reuters reported that Ripple Labs expressed interest in acquiring Celsius Network and its assets which are currently bankrupt.

Chain link (LINK) rose 17% after announcing on August 8 that it would no longer support upcoming Ethereum proof-of-work (PoW) forks that occur during the merge.

Avalanche (AVAX) gained 14.6% after being listed for trading on Robinhood on August 8.

Curve DAO (CRV) lost 6% after nameserver for Curve.Fi the website has been compromised August 9. The team quickly fixed the issue, but the front-end hack caused some losses to its users.

The market may have rebounded, but retail traders are neutral

The OKX attachment (USDT) premium is a good indicator of demand from China-based retail crypto traders. It measures the difference between peer-to-peer (P2P) transactions based in China and the US dollar.

Excessive buying demand tends to pressure the indicator above the 100% fair value and during bear markets the market supply of Tether is flooded resulting in a discount of 4% or more.

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

On August 8, the Tether price in Asia-based peer-to-peer markets saw a 2% discount, signaling moderate retail pressure. More importantly, the metric failed to improve as the total crypto capitalization gained 9% in 10 days, indicating weak demand from retail investors.

To rule out externalities specific to the Tether instrument, traders should also analyze the futures markets. Perpetual contracts, also known as reverse swaps, have an embedded rate that is typically charged every eight hours. Exchanges use these fees to avoid currency risk imbalances.

A positive funding rate indicates that longs (buyers) require more leverage. However, the opposite situation occurs when the shorts (shorts) require additional leverage, causing the funding rate to become negative.

Cumulative perpetual futures funding rate on August 12. Source: Coinglass

Perpetual contracts reflected neutral sentiment after Bitcoin and Ether maintained a slightly positive (bullish) funding rate. The current fees charged to bulls are of no concern and have resulted in a balanced situation between leveraged longs and shorts.

The continuation of the recovery depends on the Federal Reserve

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

These neutral to bearish market indicators are worrisome, given that the total capitalization of the crypto is in a 7-week uptrend. Investor distress in the Chinese property markets and further tightening moves by the FED are the most likely explanation.

For now, the odds of the ascending triangle breaking above the $1.25 trillion forecast mark seem low, but more macro data is needed to gauge the direction central banks may be heading.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.