Cryptocurrency investor sentiment on the brink of “neutral to bearish”
The risk aversion caused by rising inflation has led investors to expect additional interest rate hikes, which in turn will reduce investor appetite for growth stocks, commodities and cryptocurrencies. As a result, traders are likely to seek refuge in the US dollar and inflation-protected bonds during periods of uncertainty.
Fear and Greed Index in Cryptography. Source: Alternative.me
The Fear and Greed Index hit 27/100 on August 21, the lowest reading in 30 days for the data-driven sentiment gauge. The move confirmed that investor sentiment was shifting away from the neutral reading of 44/100 on August 16, reflecting the fact that traders are relatively fearful of short-term price action in the cryptocurrency market.
Here are the winners and losers from the past seven days as total cryptocurrency capital fell 12.6% to $1.04 trillion. While Bitcoin (BTC) posted a 12% drop, a few mid-cap cryptocurrencies dropped 23% or more in the period.
Weekly winners and losers among the top 80 coins. Source: Nomex
EOS jumped 34.4% after its community turned bullish on the steady “Mandel” cross slated for September. The update is expected to completely terminate the relationship with Block.one.
Chiliz (CHZ) rose 2.6% after Socios.com invested $100 million for a 25% stake in the new digital and entertainment arm of FC Barcelona.
Celsius (CEL) fell 43.8% after its August 14 bankruptcy filing showed a $2.85 billion fund mismatch.
Most tokens performed negatively, but retail demand in China improved slightly
The premium of OKX Tether (USDT) is a good measure of retailer demand in China. It measures the difference between peer-to-peer (P2P) trading based in China and the US dollar.
Excessive buying demand tends to pressure the index above fair value at 100%, and during bear markets, it floods Tether’s market supply and causes a discount of 4% or higher.
Tether (USDT) is peer-to-peer against USD/CNY. Source: OKX
On August 21, the price of Tether in Asia-based peer-to-peer markets reached a two-month high, and is currently at a discount of 0.5%. However, the index remains below the neutral to bearish range, indicating lower demand from retail buying.
Traders should also analyze the futures markets to exclude the externalities of the Tether instrument. Perpetual contracts, also known as reverse swaps, have a built-in rate that is typically charged every eight hours. Exchanges use these fees to avoid misalignments in exchange risk.
A positive funding rate indicates that longer contracts (buyers) require more leverage. However, the opposite situation occurs when short positions (sellers) require additional leverage, causing the financing rate to turn negative.
Accumulated future funding rate on August 22. Source: Coinglass
Perpetual contracts reflected a neutral sentiment after Bitcoin and Ether maintained a relatively flat funding rate. The current fee resulted from a balanced situation between long and short leveraged buys.
For the remaining altcoins, even Ether Classic’s 0.40% weekly negative funding rate (ETC) wasn’t enough to discourage short sellers.
Likely a 20% drop to retest annual lows
According to derivatives and trading indices, investors are moderately concerned about a sharper correction in the global market. The absence of buyers is evident in Tether’s slight discount when priced in CNY and near-zero funding rates in the futures markets.
Neutral to bearish market indicators are worrisome as the overall cryptocurrency capitalization is currently testing the critical $1 trillion support. If the US Federal Reserve actually continues to tighten the economy to suppress inflation, the odds of cryptocurrencies retesting their annual lows of $800 billion are high.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your research when making a decision.