A summary of market performance and the factors driving the markets over the last month, reflecting the general crypto market sentiment, DeFi and the legacy market.


General Overview 

On August 1, we experienced the completion of the impulsive upswing that began on June 28. The evaluation was USD 247.47 billion, from which we recorded an increase of 43.86%, measured by the highest peak of the evaluation on August 1, which was around USD 355.99 billion.

 

Image 1: Crypto market cap without Bitcoin (Source: TradingView)


For this reason, the month of August was followed by a consolidation period. Valuation moved sideways, reaching higher points than on the first day, but also reaching lower lows than the first rebound into the $326.1 billion range. 

 

The first half of August was still bullish, and valuation continued to move up after the slight retracement mentioned above, although with much less momentum, but still managed to reach a higher high compared to the August 1 peak, reaching USD 375.86 billion on August 17. 

 

As the market made a final attempt for further upside, it eventually lost steam and entered a slightly bearish period with the total market cap dropping back to around $344.88B. This was approximately the same low we experienced on the 12th when a second minor retracement was seen.

 

Another spike to the upside was made on September 1st, this time with stronger momentum. Still, since the evaluation reached the exact same high as on the 17th and again found resistance there, it fell back below its horizontal support and made a breakout to the downside in an impulsive manner. 

Image 2: Crypto Market Cap vs. Global Chart (Source: TradingView)


During this period, altcoins have been rising more significantly,
with some even kicking off a true altcoin season and showing staggering double-digit daily gains in the DeFi niche. At the same time, Bitcoin maintained trading in the range between $11000 on its lower level and $12000 on its upper. 

Image 3: Crypto Market Cap in % (Source: TradingView)

Looking at Bitcoin's dominance chart, we can see that it continued decreasing in August, coming from 63.82% to 59.23% on September 1st. As the market confidence is diminishing, it has started showing signs of another upturn and has moved back up above the 60% mark. 

 

This last decrease was a continuation from the descending dominance from September 8th last year and after the corrective upward move that we have seen from February till May this year. 

 

Let's assume that this is the end of the 5th wave from the lower grade count, and the C wave from the higher grade ABC correction landed on the descending support level. In this case, we could see the valuation of Bitcoin's dominance shift to more sustainable growth in the coming period. As you can see, the price found support at the lower level of the descending triangle. Should it indeed be a corrective move, a breakout above the upper resistance level could occur, and the valuation would return to the 65% range. 

This could indicate that the market is headed into a bearish period since the Bitcoin's dominance charts inversely correlated with the market sentiment and indicates market confidence. Just like now, when we are seeing a rise in dominance when the prices are falling down.

 


BTC/USD

Bitcoin's price has been moving sideways since the start of August and was mostly retesting the upper and the lower levels of the horizontal range from $11000 and $12000 throughout the month.

 

Image 4: Bitcoin/USD 4H (Source: TradingView)

 

On the 4-hour chart, we can see that on the 17th, an attempt was made for a breakout to the upside from the mentioned range, but the attempt ended as a fakeout, causing a downturn in trend. Another push to the upside was seen on September 1st when the price came to $12076 but looking after the fact, we can see that this was a corrective move followed by a straight downfall. Unlike in the case of the total market cap, this spike hasn't made it back to the attempted breakout levels on the 17th, but the price still entered the seller's territory, which was slightly above the $12k mark. 

 

According to the Elliott Wave count, this range is labeled as the 4th wave and is why it was expected to end somewhere around the vicinity of the retracement made on August 1st, to $10600, at least. Since a breakout was made to the downside, there is a change that the 4th wave ended on August 12th when the price came down for a higher low in a three-wave manner, after which the "fakeout" wave was seen, which could have been the 5th wave. 

 

When zooming in on the daily chart, we can see that this is a fractal from the previous 4th wave of the higher level count, and therefore it is expected that the price will continue to rise after a similar structure is formed.

 

Image 5: Bitcoin/USD 1D (Source: TradingView)

 

The price was projected to continue to increase and revisit the highs made in June and July last year. Although this is still in play, the whole increase from March 15th ended on August 12th. In that case, the price is now headed into a sustainable bearish period either as the corrective move of a higher degree or the continuation of the descending one. 

 

We are currently seeing the price testing the 0.382 Fib level for support, but it looks like the support isn't going to be found. In that case, a further decline could be expected to the ending point of the 4th wave from the higher degree count at the lower Fib level at around $9000 area. 

Image 6: Bitcoin/USD 1D (Source: TradingView)

 

Trading volume has been on its lower range levels and is now starting to interact with the resistance from the upper range, indicating that the trading activity will soon rise again. 


The Relative Strength Index has been diverging from August's start as it was falling down while the price has been increasing. It made it all the way to the 20% area starting to signal oversold conditions on the daily chart, but there is still more room to go as it could very well break out from the range like it did on March 12th.

 


BTC/S&P500

The U.S. stock market experienced and rose 5.23% in the first half of August and made a first small setback around August 19 when it fell 0.89%. From that point on, it continued its upward trend, unlike Bitcoin, which was in a downtrend from August 17 to August 24, but here too, there was a strong correlation from August 27 when another attempt was made, ending with an upward spike.

Image 7: Bitcoin vs. S&P500 1H (Source: TradingView)

Now again, after a run-up, we have seen a strongly correlated crash with the price of Bitcoin, which was even a full day ahead of the S&P500. 

 

That the US stock exchange index is strongly correlated with the cryptocurrency market is nothing new. As the creator of Bitcoin's stock-to-flow model, PlanB noted in June, Bitcoin and the S&P 500 are correlated and co-integrated, with the pair's "R-squared" value at 95%.

Image 8: Bitcoin vs. S&P500 (Source: https://100trillionusd.github.io/)

 

At that time, according to the model, the analyst either expected the price of Bitcoin to rise to $18.000 or the S&P500 to fall back down to match the then price hovering at around $9400 area. In the second half of June and later in the whole of July, the correlation diminished as the price of Bitcoin continued consolidating, moving to the $9000 level while the S&P500 continued rising. 

 

Looking at the most recent correlation chart from coinmetrics, we can see that the highest point was back in March when a liquidity spike to the downside was experienced across all asset classes and, most notably, in the equities market. 


Image 9: Bitcoin vs. S&P500 (Source: Coinmetrics)

The correlation index rose to 0.584 but has since declined until the 1st of August when it came down to around 0.19. From there, we have another increase, with it currently sitting slightly below 0.5, which is still very high compared to the historical data. 

 

If the traditional markets have topped out at least for now and with the rising dollar index confirming diminishing confidence, it indicates that the crypto market has found its near-term top. However, since in the last couple of days, we have seen Bitcoin's price leading the indication for the S&P500 and is showing signs of recovery, the upcoming period might be followed by another round of diminishing correlation for these markets. 


DeFi 

The decentralized finance (DeFi) space has been showing promising gains since the start of August, with the whole space increasing in value by around $5.422B coming from 4.09B on the 1st measured to its peak at $9.512B made on September 2nd. 

 

Image 10: Total Value Locked in DeFi (Source: DEFI PULSE)


We can indicate that this was the month of DeFi by the rise of some DeFi related cryptocurrencies like Polkadot
jumping to the 5th spot on CoinMarketCap, with many other altcoins like Compound, Aave, Kusama, Serum, DFI. Money, Balancer, or Ren Protocol.

 

Image 11: COMP vs KSM vs SRM vs LEND (Source: TradingView)

Looking at the comparison chart for Compound, Serum, Kusama, and Aave against Bitcoin, you can see that in August and especially in the second half of August, they have experienced a significant rise of around 100% denominated in Bitcoin. 

 

This indicates a high interest in this niche, and while the market had some bearish days, this space was mostly blooming in this period. We might expect this trend to continue in September, especially due to the lack of certainty in the gains that could be made in the market in general as DeFi lending offers guaranteed returns.  

 

Currently, the DeFi space evaluation is sitting slightly below $7.8B, but this decline could only be corrective following the downturn we have seen in the market. With Uniswap leading the way at the moment with over 22% increase in funds locked in the last 24 hours, it indicates that trading activity is likely to resume with stronger interest.  

 

But if this is the start of the broader downturn in the markets, both traditional and crypto, the DeFi space may take a hit. Some of the funds in reserves get liquidated as the prices of underlying collateral diminish. In that case, further decline in the total value locked can be seen, but most likely as a temporary measure while the turmoil sets. 

 

As the DeFi lending offers competitive rates, stablecoins, and decentralized derivatives with leverage trading, it would be expected that space continues blooming for quite some time, especially in low certainty and high volatility. 


 

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