Home CryptoMarket Total crypto market cap falls to $840 billion, but derivatives data shows traders are neutral

Total crypto market cap falls to $840 billion, but derivatives data shows traders are neutral

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Cryptocurrency market capitalization has fallen by 1.5% to $840 billion over the past seven days. Overall sentiment remains bearish, with a year-to-date loss of 64%, but the slightly negative move did not break the rising channel he started on Nov. 12.

Total crypto market capitalization in USD, 12 hours.Source: Trading View

Bitcoin (BTC) fell 0.8% over the week, stabilizing around $16,800 at 10:00 UTC on December 8, before finally surpassing $17,200 later in the day. As debates over crypto market regulation put pressure on the market and the collapse of the FTX exchange limited trader appetites, lawmakers cautioned against the potential impact on financial institutions and lack of protection for retail investors. I turned it.

On Dec. 6, the Financial Crimes Enforcement Network (FinCEN) said it was “carefully considering” decentralized finance (DeFi), while Himamauri Das, acting director of the agency, said that the digital asset ecosystem and digital He said currency was a “key priority area.” “For agencies. In particular, regulators were concerned about his DeFi “potential to reduce or eliminate the role of financial intermediaries,” which is critical to AML and CFT efforts.

Hong Kong’s Legislative Council has approved a new licensing regime for virtual asset service providers. From June 2023, cryptocurrency exchanges will be subject to the same laws as traditional financial institutions. This change will require stricter anti-money laundering and investor protection measures before an operating license can be guaranteed.

Meanwhile, Australian financial regulators are actively working on ways to incorporate payment stablecoins into the financial sector regulatory framework. On December 8th, the Reserve Bank of Australia released a report on stablecoins, citing risks of funding market turmoil and increasing bank exposure and liquidity. The analysis highlighted specific vulnerabilities of algorithmic stablecoins, noting the collapse of the Terra Luna ecosystem.

The weekly drop of 1.5% in total market cap was largely driven by Ether (ETH)’s negative 3% price move and BNB, which fell 2.5%. Still, bearish sentiment has had a major impact on altcoins, with 10 of the top 80 coins dropping more than 8% over the period.

Weekly winners and losers among the top 80 coins.Source: Nomix

Trust Wallet (TWT) grew 18.6% as service providers gained market share from browser extensions. wallet Released in mid-November.

Axie Infinity (AXS) rose 17.6% as investors adjusted their expectations after a significant 89% correction since Q1 2022.

Chainlink (LINK) saw a 10.1% adjustment after its staking program launched into early access on December 6th. This shows that investors were anticipating this event.

According to the original four-year vesting schedule, 1INCH fell 15.2% after 15% of supply was released on Dec. 1.

Leverage demand is balanced between bullish and bearish

Perpetual contracts, also known as inverse swaps, have built-in rates that are typically billed every 8 hours. Exchanges use this fee to avoid currency risk imbalances.

A positive funding rate indicates that longs (buyers) are demanding more leverage. However, the opposite situation occurs when the short (seller) requires additional leverage, resulting in a negative funding rate.

Cumulative 7-day funding rate for perpetual futures on Dec 8. Source: Coinglass

The 7-day funding rate for Bitcoin and Altcoins was near zero. This means that the data show balanced demand between leveraged longs (buyers) and shorts (sellers) over the period.

Traders should also analyze the options market to understand whether whales and arbitrage desks have placed high bets on bullish or bearish strategies.

Options put/call ratio reflects moderate bullishness

Traders can gauge overall market sentiment by measuring whether more activity is taking place via call (buy) or put (sell) options. Generally speaking, call options are used for bullish strategies and put options are used for bearish strategies.

A put-to-call ratio of 0.70 indicates that the put option open interest lags the more bullish call by 30% and is therefore bullish. In contrast, if the indicator is 1.40, the put option is 40% better and can be considered bearish.

Put-to-call ratio of BTC options volume. Source: laevitas.ch

Bitcoin price failed to break out of the $17,500 resistance on December 5, but there was only a temporary over-demand for downside protection using options.

Currently, the options market is more heavily populated by neutral to bearish strategies, with 60% support for call (buy) options, resulting in a put-to-call volume ratio near 0.40.

Related: US Lawmakers Are Questioning Federal Regulators About Banks’ Ties With Crypto Firms

Derivatives market points to upside potential

Derivatives indicators showed no signs of a deterioration in sentiment despite weekly price declines for a handful of altcoins and a 2% drop in total market cap.

Even after the balanced demand for leverage using futures contracts and the price of Bitcoin failing to break above the $17,500 level, BTC options risk metrics remain good.

As a result, the odds are in favor of those betting that the rising channel will win, pushing the market cap to the $875 billion resistance. A breakout of the channel will give the bulls a much-needed breather after a week of negative news flow.