A bearish technical formation has driven down the total crypto market capitalization over the past seven weeks. Bitcoin’s 2% decline accompanied by a 1.7% and 2.5% decline from BNB and XRP were the main drivers of the most recent 1.3% correction between May 18 and May 18. The descending wedge formation initiated in April indicates a possible breakout near $1 trillion by late July. For bulls, the bearish structure that drove the total capitalization to $1.11 trillion on May 25 means that an eventual break to the upside would require extra effort.
Bitcoin and Ether falter due to weak macroeconomic data. Sticky inflation continues to worry investors, who price in higher odds of further interest rate increases by the U.S. Federal Reserve. The country’s latest Personal Consumption Expenditure (PCE) indicator displayed a 5% increase, which is noticeably higher than the 2% inflation target.
Moreover, data from Germany’s statistics office on May 25 showed a downward revision to the country’s gross domestic product (GDP) from 0% to -0.3% for 1Q versus the previous quarter, marking the second consecutive decline. Furthermore, there’s the impending U.S. debt ceiling standoff, and the fact that the U.S. Treasury is quickly running out of cash.
There is also a series of regulatory risks at the forefront due to various governments aiming to tighten their grip on crypto assets. The latest event involved an oversight body within the European Central Bank (ESRB), which recommended special attention to bank run risks on stablecoins. The ESRB mentioned the lack of transparency regarding stablecoins, providing the example of Tether.
Given the balanced demand on futures markets, traders seem hesitant to place additional bets until there’s more clarity on the U.S. debt standoff. It is unclear whether the crypto market will be able to break out of the descending wedge formation.
Even if professional traders are not using derivatives to bet on a catastrophic scenario for Bitcoin’s price, there is presently a lack of triggers for a bull run given the uncertainty in the macroeconomic environment. So, ultimately, bears are in control as the descending wedge makes its way to another 10% correction until July.