Despite the fact that traders are less terrified than they were in June, several indicators suggest that the market is still supported on razor-thin paper foundations.
The crypto market capitalization has fluctuated in a range of 17% to 19% for the past 28 days, from $840 billion to $980 billion. Given all of the concerns surrounding recent market sell-off triggers and the Three Arrows Capital debate, the price movement is remarkable calm.
Bitcoin (BTC) rose 1.8 percent in value between July 4 and 11, while Ether (ETH) was flat during the same period. Worse, the entire crypto market has tumbled 50% in three months, implying that traders are giving a greater chance of the descending triangle bending back below its $840 billion support.
Regulation concerns continue to depress investor optimism after the European Central Bank (ECB) published a study suggesting that a lack of regulatory control exacerbated the recent collapse of algorithmic stablecoins. As a result, the ECB called for supervisory and regulatory actions to mitigate the potential effects of stablecoins in European nations’ financial systems.
The Bank of England’s deputy governor for financial stability, Jon Cunliffe, called for a set of rules to regulate the cryptocurrency economy on July 5. Cunliffe suggested that investors be protected from unrecovered losses by establishing a regulatory framework comparable to traditional finance.
The bearish sentiment from late June dissipated, according to the Fear and Greed Index, a data-driven sentiment gauge. On June 19, the indicator hit a new low of 6/100 but subsequently rose to 22/100 on July 11 as traders rebuilt their confidence in a market cycle bottom.
The outcomes and losers from the previous seven days are listed below. Even though the whole market capitalization increased by 2%, a handful of mid-capitalization altcoins rallied 13% or more.
Aave (AAVE) increased by 20% after the lending protocol announced plans to launch an algorithmic stablecoin, a suggestion that is subject to the community’s decentralized autonomous organization. After projects that previously ran in the Terra (LUNA) — now called Terra Classic (LUNC) — ecosystem migrated over to Polygon, Chiliz surged by 6%. The Socios.com app launched community-focused features to increase user participation and integration with third-party authorized developers, boosting Chiliz by 6%.
In the case of OKX, Asia-based flow and derivative demand is neutral and balanced. The OKX Tether (USDT) premium reflects the disparity between Chinese peer-to-peer transactions and the official U.S. dollar currency. When retail cryptocurrency demand goes too far, the indicator moves above fair value at 100 percent. On the other hand, negative market sentiment is expected to flood Tether’s (USDT) market offer with bears, resulting in a 4% or more discount.
Tether (USDT) peer-to-peer vs. USD/CNY. Source: OKX
Since July 4, Tether has been trading at a significant discount in Asian peer-to-peer exchanges. The indicator failed to show a mood improvement on July 8 as the overall cryptocurrency market capitalization danced near $980 billion, its highest level in 24 days.
To determine whether the lack of excitement is limited to the stablecoin flow, one should look at futures markets. Perpetual contracts, also known as inverse swaps, have an embedded rate that is generally charged every eight hours. This fee is used by exchanges to avoid exchange risk imbalances. Longs (buyers) demand more leverage when there is a positive funding rate. When shorts (sellers) want extra leverage, though, the funding rate turns negative.
Perpetual contracts were mostly stable in their readings, with Bitcoin, Ethereum and Ripple (XRP) displaying mixed funding rates. Some exchanges showed a slightly unfavorable (bearish) funding rate, but it is not prohibitive. The only exception was Polkadot’s (DOT) negative 0.35% weekly rate (equal to 1.5% per month), which was nevertheless not particularly concerning for most traders.
Traders can draw the conclusion that the market is not comfortable betting that the $840 billion overall market cap support level will hold after taking into account the lack of buying interest from Asia-based retail markets and missing leveraged futures demand.
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