After the breaking of the rising wedge formation on Aug. 17, the total cryptocurrency market capitalization fell to $1 trillion, making it challenging to reach the $1.2 trillion support last seen on June 10.
The deteriorating conditions are not limited to the crypto markets. The price of WTI oil dropped by 3.6% on Aug. 22, down 28% from the peak of $122 on June 8. The United States Treasuries 5-year yield, which hit 2.61% on Aug. 1, reversed its trend and is now at 3.16%. These changes suggest that investors are losing confidence in the central bank’s policies of increasing money supply to hold those debt instruments.
Goldman Sachs’ chief U.S. equity strategist, David Kostin, recently mentioned that the risk-reward for the S&P 500 is skewed to the downside after a 17% rally since mid-June. Inflation surprises could prompt the Federal Reserve to tighten the economy more aggressively, impacting valuations negatively.
Extended lockdowns in China to control COVID-19 spread and property debt issues led the PBOC to reduce its five-year loan prime rate from 4.45% to 4.30% on Aug. 21, following a surprise interest rate cut by the Chinese central bank a week prior.
Crypto Investor Sentiment Hovers Around ‘Neutral-to-Bearish’
Investors are becoming cautious due to rising inflation and the expectation of further interest rate hikes, which could decrease interest in growth stocks, commodities, and cryptocurrencies. Traders may turn to the U.S. dollar and inflation-protected bonds during uncertain times.
The Fear and Greed Index hit 27/100 on Aug. 21, its lowest level in 30 days. This shift from a neutral reading of 44/100 on Aug. 16 indicates that traders are apprehensive about short-term price movements in the crypto market.
While the total crypto market capitalization fell by 12.6% to $1.04 trillion in the past week, Bitcoin saw a 12% decline, and some mid-cap altcoins dropped by over 23%.
Mixed Performance of Tokens with Some Positive Signs in China
The OKX Tether premium reflects China-based retail crypto trader demand. On Aug. 21, the Tether price in Asian markets reached a 0.5% discount, suggesting slight improvement in retail demand. However, the overall index remains in the neutral-to-bearish range, indicating low buying demand.
Futures markets should also be considered to understand the demand accurately. Perpetual contracts showed a neutral sentiment with balanced leverage positions between longs and shorts.
Derivatives and trading indicators suggest concerns about a significant global market correction, with the potential for a 20% drop to test yearly lows.
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