Crypto market at risk of a 20 percent drop to new yearly lows after breaking dreams of recovery

Gaming crypto and NFTs suffer losses as investors lose faith in central financial institutions

By Shashank Bhardwaj

Image: Shutterstock

Following the recent market sell-off, the Bitcoin price appears to have slipped off once again. After the rising wedge formation was broken on Wednesday, August 17, the total crypto market capitalisation quickly fell to $1 trillion. This means that the bulls' dream of recouping the $1.2 trillion in support is now even further away. Macroeconomic conditions appear to be pressuring risk assets such as crypto assets and equities.

BTC is still down 10 per cent in the last seven days. Meanwhile, ETH has fallen by 12 percent. This has resulted in a significant drop in overall market capitalisation. Furthermore, gaming and NFT-related crypto assets have also suffered significant losses in the last week. Flow (FLOW), Stepn (GMT), Axie Infinity (AXS), Decentraland (MANA), and Gala (GALA) are among them.

However, the crypto market is not the only one struggling right now. WTI oil lost 3.6 percent of its value on August 22. It had fallen 28 percent from its peak of $122 on June 8. Furthermore, the five-year US Treasury yield reversed its trend. It is currently worth 3.17 percent. This occurred after it fell to a low of 2.61 percent on August 1. These circumstances suggest that investors are losing faith in the central bank's practice of requesting additional funds to hold such debt instruments.

In other words, the current price action in the financial sector can be attributed to a decrease in risk appetite among market participants. The US Dollar (DXY Index) has been steadily rising. This occurs as the market seeks refuge from rising inflation and uncertainty. This is having a negative impact on other major currencies, stocks, and crypto assets.

After a 17 percent rally since mid-June, Goldman Sachs' chief U.S. equity strategist David Kostin recently stated that the risk-reward for the S&P 500 is skewed to the downside.

According to a client note written by Kostin, positive inflation surprises would force the US Federal Reserve to tighten the economy more aggressively, lowering valuations. If the US dollar continues to rise, the nascent sector's total market cap could fall by 58 percent by completing a bear flag formed on its weekly chart.

In this scenario, Peter Schiff, the chief economist and lead strategist at Euro Pacific Capital stated, "Personally, I think Bitcoin topped out at $69,000…I don't think it's going to reach another high."

It is worth noting here that despite the falling price, Bitcoin's long-position interest remains at its highest level in the last year. Furthermore, with the upcoming 'Merge' of Ethereum, capital could flow from BTC to ETH and other altcoins. However, in a case where the capital is split between BTC and ETH, we can expect a quick sweep followed by a recovery appears to be a viable outcome.

The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash

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