Crypto markets bounced and sentiment improved, but retail still doesn’t have FOMO

An ascending triangle formation has driven the total crypto market cap towards the $1.2 trillion level. The problem with this seven-week setup is the diminishing volatility, which could last until the end of August. From there, the pattern could break either way, but Tether and futures market data show that bulls lack enough conviction to catalyze an upside breakout.

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

The Chinese property market has 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 companies to suffer the most.

In short, investors in risky assets are anxiously awaiting the Federal Reserve and central banks around the world to signal that policy tightening is coming to an end. On the other hand, expansionary policies are more favorable to scarce assets, including cryptocurrencies.

Sentiment improves to neutral after 4 months

The risk-off attitude caused by rising interest rates has instilled a bearish sentiment in cryptocurrency investors since mid-April. As a result, traders have been reluctant to allocate to volatile assets and have sought refuge in US Treasuries, even though their returns do not compensate for inflation.

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 during August when the indicator held a 30/100 level. On August 11, the metric finally entered “neutral” territory after a four-month bearish trend.

Below are the winners and losers from the past seven days as total crypto capitalization increased by 2.8% to $1.13 trillion. While Bitcoin (BTC) posted just a 2% gain, a handful of mid-cap altcoins jumped 13% or more in the period.

Celsius (CEL) jumped 97.6% after Reuters reported that Ripple Labs showed interest in buying the Celsius Network and its assets that are currently in bankruptcy.

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

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

Curve DAO (CRV) lost 6% after the name server for the Curve.Fi website was compromised on August 9th. The team quickly fixed the issue, but the front-end hack caused some user losses.

The market may have rallied, but retail traders are neutral

The OKX Tether (USDT) premium is a good gauge of demand from China-based crypto traders. It measures the difference between China-based peer-to-peer (P2P) trades and the US dollar.

Excessive buying demand tends to push the indicator above fair value of 100%, and during bearish markets, Tether’s market supply is flooded causing a discount of 4% or higher.

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

To rule out externalities specific to the Tether instrument, traders must also analyze futures markets. Perpetual contracts, also known as inverse swaps, have a built-in rate that is usually charged every eight hours. Exchanges use this fee to avoid imbalances in currency risk.

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

Perpetual contracts reflected a neutral sentiment after Bitcoin and Ether maintained a slightly positive (bullish) funding rate. The current fees imposed on bulls are not of concern and resulted in a balanced situation between leveraged longs and shorts.

Further 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 a positive funding rate in the futures markets.

These neutral-to-bearish market indicators are worrisome, given that total crypto capitalization has been in a seven-week uptrend. Investors’ concern over Chinese property markets and further tightening by the FED is the most likely explanation.

For now, the odds of the ascending triangle breaking above the projected $1.25 trillion mark seem low, but further macroeconomic data is needed to estimate the direction central banks may take.

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