Despite the recent negative crypto and macroeconomic news flow, the cryptocurrency market capitalization crossed $1 trillion on January 21st. At the moment, it is an encouraging sign that the derivatives indicators are not showing increased demand from bearish traders.
Bitcoin (BTC) price rose 8% over the week and stabilized near $23,100 at 18:00 UTC on January 27th. This is because the market considered the potential impact of his Jan. 19 Genesis Capital bankruptcy.
One of the concerns is that Genesis Capital’s largest obligor is Digital Currency Group (DCG), which happens to be its parent company. As a result, investors are uncertain whether Grayscale Bitcoin Trust (GBTC) assets could face liquidation as Grayscale’s money management could be at risk. The investment vehicle currently holds $14 billion worth of Bitcoin positions for holders.
A U.S. Court of Appeals is scheduled to hear arguments related to Grayscale Investments’ lawsuit against the Securities and Exchange Commission (SEC) on March 8. Fund managers have questioned the SEC’s decision to reject the launch of asset-backed exchange-traded funds (ETFs).
Regulatory concerns also weighed on the market after South Korean prosecutors sought an arrest warrant for Bithumb exchange owner Kang Jong-Hyun. On January 25, the 2nd Financial Investigation Division of the Seoul Southern District Public Prosecutor’s Office convicted Kang and two Bithumb executives on suspicion of fraudulent illegal transactions.
A 7% weekly increase in total market capitalization was capped by a negative 0.3% price move in Ether (ETH). Still, bullish sentiment has had a major impact on altcoins, with 11 of the top 80 coins up more than 18% over the period.
Aptos (APT) is 91% profitable after its smart contract network’s total value locked (TVL) reaches a record $58 million, boosted by PancakeSwap DEX.
Fantom (FTM) is up 50% after announcing new database system Carmen. New Fantom virtual machineTosca.
Optimism (OP) faced a 21% rise after a spike in trading volume on an NFT incentive program called Optimism Quest.
Leverage Demand Slightly Favors Bulls
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.
Bitcoin and Ethereum had positive 7-day funding rates. This means that the data shows slightly higher demand for leveraged longs (buyers) and shorts (sellers). Still, a 0.25% weekly funding cost is not enough to deter leveraged buyers.
Interestingly, Aptos was the only exception, with an altcoin weekly funding cost of minus 0.6%. This meant that short sellers were paying to maintain their positions. This move can be explained by his 91% gain in 7 days, suggesting that sellers are expecting some sort of technical correction.
Options Put-to-Call Ratios Show No Signs of Worry
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.
Bitcoin price failed to break the $23,300 resistance, but demand for bullish call options has outpaced neutral to bearish puts since January 6.
The options market is now more heavily populated by neutral to bullish strategies, with 50% support for call options and a put/call volume ratio close to 0.50.
Related: Bitcoin Hits $200,000 Before $70,000 ‘Bear Market’ In Next Cycle – Prediction
Derivatives market points to further rally potential
After three consecutive weeks of combined 40% gains year-to-date excluding stablecoins, there is no sign of demand from short selling. More importantly, the leverage indicator shows that the bulls are not using excessive leverage.
Derivatives markets show the potential for further upside, and there is no reason to panic if the market cap returns to $950 billion on January 18th. Currently, the Bitcoin options market shows whales and market makers favoring a neutral-to-bullish strategy.
Ultimately, the odds are in favor of those betting on the $1 trillion market cap to be sustained, leaving room for further gains.
This article does not contain investment advice or recommendations. All investment and trading moves involve risk and readers should conduct their own research when making decisions.
The views, thoughts and opinions expressed herein are those of the authors only and do not necessarily reflect or represent the views or opinions of Cointelegraph.