The total market capitalization of cryptocurrencies reached $1 trillion on July 18. After almost three months of falling below this level, Bitcoin and Ether were flat and faced a minor correction.
Despite the minor correction, the total market cap of cryptocurrencies remained at around $1.03 trillion on July 24. The market's stability is mainly due to the flat performance of Bitcoin and Ether and the value of stablecoins. However, the data also shows that several of the top 80 coins lost more than 9% during the period.
Although the support level at $1 trillion is still intact, it will take some time for investors to regain their confidence in cryptocurrencies. The Federal Reserve's actions and market sentiment could also significantly impact the price movement.
The lack of conviction and the wait-and-see mentality are some of the factors that could influence the price movement in cryptocurrencies. Worse than expected data could increase the expectations of an expansionary monetary policy.
The Federal Reserve is expected to raise interest rates at its policy meeting on July 26 and 27. Besides this, investors will also be eyeing the release of the second quarter gross domestic product report on July 27.
Confidence remains low
The Fear and Greed Index, a sentiment indicator, improved from its previous level on July 18. It currently holds 30 out of 100. This is an increase from its previous level of 20.
Despite the minor recovery in the total market cap of cryptocurrencies, the mood of traders remained negative.
After experiencing a significant increase in value during the past couple of months, Arweave experienced a 20.6% technical correction after it rallied almost 60% when the company's network file-sharing solution exceeded 80 terabytes of storage.
Solana also experienced a 9% decline after it was reported that the company's demand for smart contracts could be negatively affected by the upcoming migration of Ethereum to a proof-of-stake consensus.
Retail traders do not show bullish outlook
The premium that China-based retail investors demand OKX Tether is a good indication of their buying power. It compares the value of the US dollar with that of peer-to-peer transactions.
When excessive buying pressure is applied to the market offer, it causes the value of the indicator to be pushed higher. On the other hand, when the market is in a bear market, the offer is flooded and causes a higher discount.
Since July 4, the discount of Tether to peer-to-peer markets has been relatively small. Retail investors continued to dump the cryptocurrency market due to the lack of excessive buying power. Despite the overall market cap rally from July 13 to 20, retail traders still avoided cryptocurrencies.
One should also analyze the multiple factors that affect the price movement of cryptocurrencies through the derivatives market. For instance, the funding rate on perpetual contracts can show the short-term market sentiment.
The funding rate is a function of the demand for leverage exhibited by longs and sellers. If longs are in demand, the funding rate turns positive. When shorts require more leverage, the rate goes negative.
The demand for leverage exhibited by the derivatives contracts on Bitcoin, Ether, and Cardano was relatively modest.
The lack of opportunity for investors to position themselves as a solid alternative to traditional financial instruments has become the main factor that has affected the price movement of cryptocurrencies.
Since the 67% correction that occurred since the November 2021 peak, the lack of leverage buying by retail investors has remained the main factor that has affected the lack of confidence in rising market capitalization.