After the rising wedge formation was broken on August 17, the total crypto market cap quickly dropped to $1 trillion, and the bulls dreamed of a return to the 1.2 support level. Trillion dollars, last seen on June 10, has become far away.
These dire conditions are not only affecting the cryptocurrency market. World oil prices (WTI) fell 3.6% on August 22, down 28% from the $122 peak seen on June 8. US 5-year yields bottomed on August 1 at 2.61%, have reversed the trend, and are currently trading at 3.16%. These are all signs that investors are feeling distrustful of central bank policies in asking for more money to hold those debt instruments.
Recently, Goldman Sachs US equity strategist David Kostin stated that the risk-reward for the S&P 500 is trending down following a 17% rally since mid-June. According to a client note written by Kostin, an unexpected increase in inflation will require the US Federal Reserve (Fed) to tighten the economy more aggressively, negatively impacting valuations.
Meanwhile, prolonged lockdowns supposedly aimed at preventing the spread of Covid-19 in China and asset debt problems have prompted the People’s Bank of China (PBOC) to cut interest rates. The 5-year loan prime rate was from 4.45% to 4.3% on August 21. Curiously, this development comes a week after China’s central bank lowered interest rates in an unusual move.
The risk-on attitude brought about by rising inflation has led investors to expect additional rate hikes, which will reduce investors’ appetite for growth stocks, commodities, and cryptocurrencies. Traders will likely seek shelter in US dollars and inflation-protected bonds during times of uncertainty.
The Fear and Greed Index hit 27/100 on August 21, a 30-day low for the sentiment gauge. This move confirmed the changing investor sentiment from 44/100 on August 16, and it reflects the fact that traders are relatively nervous about the short-term price action of the cryptocurrency market. .
Here are the top 80 altcoins that have risen and fallen the most over the past seven days as the total crypto cap fell 12.6% to $1.04 trillion. While Bitcoin (BTC) is down 12%, several mid-cap altcoins have dropped 23% or more during this period.
EOS rallied 34.4% after its community became optimistic about the “Mandel” hard fork scheduled for September. The update is expected to completely end its relationship with Block.
Chiliz (CHZ) jumped 2.6% after Socios.com invested $100 million to buy a 25% stake in Barcelona Football Club’s digital and entertainment arm.
In contrast, CEL (CEL) fell 43.8% after reporting bankruptcy on August 14, showing a $2.85 billion mismatch.
According to trading indices and derivatives, investors are moderately worried about the correction of the global market. The lack of buyers is evident in Tether’s slight decline in Chinese yuan valuation and near-zero funding rates in the futures market.
These neutral-to-bearish market indicators are worrisome, as the total crypto cap is currently testing the key $1 trillion support level. If the Fed continues to effectively tighten the economy to stave off inflation, the chances of the crypto market retesting yearly lows at $800 billion are high.
