The total crypto market capitalization fell off a cliff between June 10 and 13, losing $1 trillion for the first time since January 2021. Bitcoin (BTC) fell 28% in a week and Ether (ETH) faced to a distressing 34.5% correction.
Currently, the total cryptocurrency market capitalization is $890 million, a negative return of 24.5% since June 10. That certainly begs the question of how the two leading crypto assets managed to underperform the remaining coins. The answer lies in the $154 billion in stablecoins that distort the performance of the broader market.
Despite the chart showing support at the $878 billion level, it will take some time for traders to factor in every recent event that has impacted the market. For example, the US Federal Reserve raised interest rates by 75 basis points on June 15, the biggest hike in 28 years. The central bank also initiated a balance sheet haircut in June, with the aim of reducing its $8.9 trillion positions, including mortgage-backed securities (MBS).
Venture firm Three Arrows Capital (3AC) reportedly failed to honor margin requests from its lenders, raising major insolvency red flags across the industry. The company’s heavy exposure to Lido Finance’s Grayscale Bitcoin Trust (GBTC) and Staked ETH (stETH) was partially responsible for the massive sell-off events. A similar issue forced cryptocurrency staking and lending firm Celsius to halt user withdrawals on June 13.
The spirit of investors is effectively broken
The bearish sentiment was clearly reflected in the crypto markets when the Fear and Greed Index, a data-driven gauge of sentiment, hit 7/100 on June 16. The reading was the lowest since August 2019 and was last seen outside the “extreme fear” zone on May 7.
Below are the winners and losers since June 10. Interestingly, Ether was the only cryptocurrency in the top 10 to make the list, which is unusual during sharp corrections.
WAVES lost another 37% after the project’s largest decentralized finance (DeFi) app, Vires Finance, implemented a daily stablecoin withdrawal limit of $1,000.
Ether fell 34.5% as developers postponed switching to a proof-of-stake consensus mechanism for another two months. The “difficulty bomb” will essentially stop processing mining, paving the way for the long-awaited Fusion.
AAVE was down 33.7% after MakerDAO voted to remove lending platform Aave’s ability to generate DAI for its pool of unsecured loans. The community-led decision is intended to mitigate the protocol’s exposure to a potential impact of Ether (stETH) collateral on staking.
Asian traders rushed to get stablecoins
The Tether (USDT) premium on OKX is a good indicator of demand from China-based retail crypto traders. It measures the difference between China-based peer-to-peer (P2P) transactions and the US dollar.
Excessive buying demand tends to push the indicator above 100% fair value, and during bear markets, Tether’s market supply is flooded causing a discount of 4% or more.
Contrary to expectations, Tether has been trading at a premium on Asian peer-to-peer markets since June 12. Despite the massive drop in cryptocurrency prices, investors have been looking to stablecoins for protection, rather than going out into fiat currency. This movement continued until June 17, when the USDT paired its price against the official exchange rate.
Derivatives metrics should be analyzed to exclude externalities specific to the stablecoin market. For example, perpetual contracts have a built-in rate that is typically charged every eight hours. Exchanges use this rate to avoid currency risk imbalances.
A positive funding rate indicates that long buyers require more leverage. However, the opposite situation occurs when short sellers require additional leverage, causing the funding rate to turn negative.
Those derivative contracts show a more significant demand for short (bearish) leverage positions across the board. Although the numbers for Bitcoin and Ether were negligible, the TRX and Polkadot (DOT) token situation raises concerns.
Pokadot’s negative weekly rate of 0.90% equates to 3.7% per month, meaning those who bet on the price decline are willing to pay a reasonable rate to maintain their leveraged positions. This is usually interpreted as a sign of confidence from the bears, therefore it is a bit of a concern.
The market fell by 70% and there is still no demand for long positions with leverage
The big question is how retrospective investor fear and lack of appetite are for buyers using leverage despite the 70% correction from the November 2021 peak. Encouraging to learn that Asian traders moved their positions to Tether instead of going out of all markets to fiat deposits.
There is likely to be no clear sign of a bottom formation, but Bitcoin bulls need to hold steady at $20,000 to avoid breaking a 13-year pattern of never breaking below the all-time high of the previous halving cycle.
The views and opinions expressed herein are solely those of the Author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the full amount invested may be lost. The services or products offered are not aimed at or accessible to investors in Spain.