Total cryptocurrency market capitalization fell 5% between November 14 and 21, reaching a remarkable $795 billion. Nevertheless, the general sentiment is much worse, considering that this valuation is the lowest seen since December 2020.
Bitcoin (BTC) price was down just 2.8% on the week, but investors have little to celebrate because the current level of $16,100 represents a 66% drop year-to-date. Even if the collapse of FTX and Alameda Research has been priced in, investor uncertainty is now focused on Grayscale funds, including the $10.5 billion Grayscale Bitcoin Trust.
Genesis Trading, which is part of the Digital Currency Group (DCG) conglomerate, halted withdrawals on November 16. In its latest quarterly report, the crypto derivatives trading and lending firm stated that it has $2.8 billion worth of active loans. The fund manager, Grayscale, is a subsidiary of DCG, and Genesis acted as the liquidity provider.
The 5% weekly drop in total market capitalization was mainly affected by the negative 8.5% Ether (ETH) price movement. However, the bearish sentiment had a bigger effect on altcoins, as nine of the top 80 coins lost 12% or more in the period.
Litecoin (LTC) gained 5.6% after addresses inactive on the network for a year topped 60 million coins.
Near Protocol’s NEAR (NEAR) fell 23% on concerns over 17 million tokens held by FTX and Alameda, which backed Near Foundation in March 2022.
Decentraland’s MANA (MANA) lost 15% and Ethereum Classic (ETC) another 13.5% as both projects were heavily invested by Digital Currency Group, controller of troubled Genesis Trading.
Leverage demand balanced between bulls and bears
Perpetual contracts, also known as reverse swaps, have an implicit fee that is typically charged every eight hours. Exchanges use this rate to avoid imbalances in foreign exchange risk.
A positive funding rate indicates that longs (buyers) are demanding more leverage. However, the opposite situation occurs when shorts (sellers) demand more leverage, causing the funding rate to turn negative.
The seven-day funding rate was slightly negative for Bitcoin, so the data points to excessive demand for shorts (sellers). Even so, a weekly cost of 0.20% to maintain bearish positions is not worrisome. In addition, the rest of the altcoins — apart from SOL de Solana (SOL) — presented mixed figures, indicating a balanced demand between longs (buyers) and shorts.
Traders should also analyze the options markets to understand whether whales and arbitrage desks have been more bullish or bearish.
The put/call option ratio shows a moderate uptrend
Traders can gauge overall market sentiment by gauging if there is more activity through call or put options.. In general, call options are used for bullish strategies while put options are for bearish ones.
A put to call ratio of 0.70 indicates that the open interest of put options lags 30% behind the more bullish call options. On the contrary, an indicator of 1.20 favors put options by 20%, which can be considered bearish.
Despite the fact that the price of Bitcoin broke below $16,000 on November 20, investors did not rush to protect themselves to the downside with options. As a result, the ratio between put and call options held steady near 0.54. Additionally, the Bitcoin options market continues to be more populated by neutral to bearish strategies, as indicated by the current level favoring call options.
Derivatives data shows investor resilience, given the absence of excessive demand for bearish bets, based on futures funding rate and neutral to bearish options open interest. Consequently, the odds are in favor of those who are betting that the $800 billion market cap support will show strength.
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