Bitcoin and altcoins pop to the upside, but upcoming macro events could cap the rally

The 13% gains in the six days leading to Sept. 12 brought the total crypto market capitalization closer to $1.1 trillion, but this was not enough to break the descending trend. As a result, the overall trend for the past 55 days has been bearish, with the latest support test on Sept. 7 at a $950 billion total market cap.

An improvement in traditional markets has accompanied the recent 13% crypto market rally. The tech-heavy Nasdaq Composite Index gained 6.2% since Sept. 6 and WTI oil prices rallied 7.8% since Sept. 7. This data reinforces the high correlation versus traditional assets and places the spotlight on the importance of closely monitoring macroeconomic conditions.

The correlation metric ranges from a negative 1, meaning select markets move in opposite directions, to a positive 1, which reflects a perfectly symmetrical movement. A disparity or a lack of relationship between the two assets would be represented by 0.

As displayed above, the Nasdaq composite index and Bitcoin 50-day correlation currently stand at 0.74, which has been the norm throughout 2022.

The FED’s Sept. 21 decision will set the mood

Stock market investors are anxiously awaiting the Sept. 21 U.S. Federal Reserve meeting, where the central bank is expected to raise interest rates again. While the market consensus is a third consecutive 0.75 percentage point rate hike, investors are looking for signs that the economic tightening is fading away.

A report on the U.S. consumer price index, a relevant inflation metric, is expected on Sept. 13 and on Sept. 15, investor attention will be glued to the U.S. Retail sales and industrial production data.

Currently, the regulatory sentiment remains largely unfavorable, especially after the enforcement director for the United States Securities and Exchange Commission (SEC), Gurbir Grewal, said the financial regulator would continue to investigate and bring enforcement actions against crypto firms.

Altcoins rallied, but pro traders were resilient to leverage longs

Below are the winners and losers of last week’s total crypto market capitalization 8.3% gain 8.3% to $1.08 trillion. Bitcoin (BTC) stood out with a 12.5% gain, which led its dominance rate to hit 41.3%, the highest since Aug. 9.

Terra (LUNA) jumped 107.7% after Terra approved a proposal on Sept. 9 for an additional airdrop of over 19 million LUNA tokens until Oct. 4.

RavenCoin (RVN) gained 65.8% after the network hashrate reached 5.7 TH per second, the highest level since January 2022.

Cosmos (ATOM) gained 24.6% after Crypto research firm Delphi Digital shifted the focus of its research and development arm to the Cosmos ecosystem on Sept. 8.

Even with these gains, a single week of positive performance is not enough to interpret how professional traders are positioned. Those interested in tracking whales and market markers should analyze derivatives markets. Perpetual contracts, also known as inverse swaps, have an embedded rate usually charged every eight hours. Exchanges use this fee to avoid exchange risk imbalances.

A positive funding rate indicates that longs (buyers) are demanding more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative.

Perpetual contracts reflected a neutral sentiment as the accumulated funding rate was relatively flat in most cases. The only exceptions have been Ether (ETH) and Ether Classic (ETC), even though a 0.30% weekly cost to maintain a short (bear) position should not be deemed relevant. Moreover, those cases are likely related to the Ethereum merge, the transition to a Proof-of-Stake network expected for Sept. 15.

Related: Glimpses of positive momentum in an overall bearish market? Report

The odds of a downtrend are still high

The positive 8.3% weekly performance can't be deemed a trend change considering the move was likely tied to the recovery in traditional markets. Furthermore, one could assume that investors are likely to price in the risk of additional regulatory impact after Gary Gensler’s remarks.

There is still uncertainty on potential macroeconomic triggers and traders are not likely to add risk ahead of important events like the FOMC interest rate decision. For this reason, bears have reason to believe that the prevailing longer-term descending formation will resume in the upcoming weeks.

Professional traders' lack of interest in leverage longs is evident in the neutral futures funding rate and this is another sign of negative sentiment from investors. If the crypto total market capitalization tests the bearish pattern support level at $940 million, traders should expect a 12.5% price drop from the current $1.08 billion level.

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