It is becoming increasingly difficult to maintain a short-term bullish outlook on cryptocurrencies as the total market capitalization of cryptocurrencies has been below $1.4 trillion over the past 146 days. Moreover, the downward channel that began at the end of July capped growth after two sharp declines.
Total market capitalization of cryptocurrencies in USD. Source: Trading View
The negative 1% week-over-week result in the cryptocurrency markets was accompanied by a drop in the S&P 500 stock index, which initially remained stable at $3,650. Uncertainty continues to limit any recovery as deteriorating global economic conditions sent trans-Pacific freight rates down 75% from the previous year, forcing ocean liners to cancel dozens of flights.
Contrasting macroeconomic signals limit the upside potential of the risk market
On the other hand, the global macroeconomic scenario improved after the UK government canceled plans to cut income tax on 3 October. On the other hand, investor fears intensified as global investment bank Credit Suisse’s credit default swaps hit an all-time high in October. 3. These instruments allow investors to hedge against default, and their value has exceeded the levels observed at the height of the 2008 financial crisis.
Below is a list of winners and losers from losing 1% of the cryptocurrency market cap to $935 billion. Bitcoin (BTC) surged 1%, bringing the dominance rate to 41.5%, the highest since August 5th.
Weekly winners and losers among the top 80 coins. Source: Nomex
Quant (QNT) stock jumped 15% amid rumors that an interoperable blockchain protocol will be adopted by governments and regulators.
Maker (MKR) gained 10.6% after MakerDAO made a proposal to lower the stability fee for the ETH Curve Protocol (ETH) package.
The UniSwap (UNI) protocol gained 10.6% after UniSwap Labs, a startup involved in the development of the protocol, raised more than $100 million from venture capitalists.
One week of negative results is still not enough to explain how professional the traders are. Those interested in tracking whales and market markers should look into the derivatives markets.
Derivatives markets point to further decline
For example, perpetual futures contracts, also known as reverse swaps, have an embedded interest rate that is typically charged every eight hours. Exchanges use these fees to avoid currency risk mismatch.
A positive funding rate indicates that long positions (buyers) require more leverage. However, the reverse situation occurs when short positions (sellers) require additional leverage, causing the funding rate to become negative.
Aggregate funding rate for 7-day futures contracts on October 3rd. Source: Coinglass
The standing contracts reflected neutral sentiment as the accrued funding rate has largely remained relatively flat over the past seven days. The only exception was Ether Classic (ETC), although the 0.50% weekly fee for maintaining a short (bearish) position should not be considered relevant.
Since September 26, the yield on 5-year US Treasury bonds has fallen from 4.2% to 3.83%, indicating that investors are demanding a lower yield for holding a very reliable asset. The flight to quality shows how risk averse traders are as weak economic data and corporate earnings are causing mixed sentiment.
For this reason, the bears believe that the dominant long-term bearish formation will continue in the coming weeks. In addition, the disinterest of professional traders in making a profit from the purchase (purchase) of cryptocurrencies is manifested in the neutral funding rate of futures. Accordingly, the current resistance to the $980bn market cap should remain strong.
