Fed policy and faltering market sentiment could bring total cryptocurrency market cap back below $1 trillion

The total cryptocurrency market cap crossed $1 trillion on July 18 after a painful thirty-five-day period below the key psychological level. Over the next seven days, Bitcoin (BTC) was trading flat near $22,400, and Ether (ETH) faced a 0.5% correction to reach $1,560.

Total cryptocurrency market cap, billion USD. Source: TradingView

Total cryptocurrency capitalization closed on July 24 at $1.03 trillion, a modest move of negative 0.5% for seven days. The apparent stability is biased towards the flat performance of BTC and Ether and the $150 billion worth of stablecoins. The broader data masks the fact that seven of the top 80 coins have fallen by 9% or more in this period.

Although the chart shows support at the $1 trillion level, it will take some time for investors to regain confidence to invest in cryptocurrencies and the actions of the US Federal Reserve may have the biggest impact on price action.

Moreover, the sit-and-wait mentality may be a reflection of important macroeconomic events scheduled for next week. In general, worse-than-expected data tends to increase investor expectations for expansionary measures, which are beneficial for riskier assets such as cryptocurrency.

The Federal Reserve policy meeting is scheduled for July 26-27, and investors are expecting the US central bank to raise interest rates by 75 basis points. Moreover, the US second quarter GDP – the broadest measure of economic activity – will be released on July 27.

A trillion dollars is not enough to instill confidence

Investor sentiment improved from July 18, as reflected in the Fear and Greed Index, a data-driven measure of sentiment. The index currently holds 30 out of 100, an increase from 20 on July 18 when it was hovering in the “extreme fear” area.

Indicator of fear and greed in cryptocurrency. Source: the alternative

One should note that despite the recovery of the total market capitalization of the trillion dollar cryptocurrency, the sentiment of the traders did not improve much. Listed below are the winners and losers from July 17-24.

Weekly winners and losers among the top 80 coins. Source: Nomex

Arweave (AR) experienced a 20.6% technical correction after a staggering 58% rise from July 12-18 after its network file-sharing solution exceeded 80 Terabytes (TB) of data storage.

Polygon (MATIC) is down 11.7% after Ethereum co-founder Vitalik Buterin backed the implementation of Zero-Knowledge Rollups, a feature currently in the works at Polygon.

Solana (SOL) corrected 9% after demand for the smart contract network was negatively affected by Ethereum’s upcoming transition to a Proof of Stake consensus.

Retailers are not interested in bullish positions

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

Tether has been trading at a slight discount in the Asian peer-to-peer markets since July 4th. Not even a 25% increase in total market capitalization during the July 13-20 period is enough to show excessive buying demand from retailers. For this reason, these investors have continued to abandon the cryptocurrency market by seeking shelter in fiat currency.

One should analyze metrics for crypto derivatives to exclude the externalities of the stablecoin market. For example, permanent contracts 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 July 24. Source: Coinglass

Derivatives contracts show modest demand for leveraged long (bull) positions on Bitcoin, Ether and Cardano. However, nothing is out of the norm after 0.15% weekly funding equals 0.6% monthly cost, so it’s quiet. The opposite movement occurred in Solana, XRP and Ether Classic (ETC), but this is not enough to cause concern.

As investor attention turns to global macroeconomic data and the Federal Reserve responds to weak conditions, the window for cryptocurrency to establish itself as a solid alternative is getting smaller.

Crypto traders are citing fear and a lack of leverage, even in the face of a 67% correction since the November 2021 peak. Overall, the derivatives and stablecoin data show a lack of confidence in supporting the trillion-dollar market cap.

The opinions and opinions expressed here are solely those of author and do not necessarily reflect the opinions of Cointelegraph. Every investment and trading movement involves risks. You should do your research when making a decision.