Total cryptocurrency market capitalization fell 8.1% over the past two days after failing to break the $880 billion resistance on Dec. 14.
The rejection did not invalidate the 4-week ascending channel, but a weekly close below $825bn will confirm a move to the lower band and lower the support level to $790bn.
Overall investor sentiment towards the market remains bearish with YTD losses standing at 66%. Despite this, the price of Bitcoin (BTC) fell just 2% on the week, to the $16,800 level as of 17:00 UTC on December 16.
A very different scenario has emerged for altcoins which are being pressured by pending regulation and fears that major exchanges and miners could be insolvent. This explains why the total market capitalization had fallen 4.7% since December 9.
According to court documents filed December 15, a US trustee announced the committee responsible for part of FTX’s bankruptcy proceedings. Among them are Wintermute Asia, a leading market maker, and GGC International, a subsidiary of distressed lending platform Genesis. Investors do not know who the biggest creditors of the failed FTX exchange group are and this is fueling speculation that the contagion could continue to spread.
On December 15, the central bank of the Netherlands issued a warning to investors using KuCoin, saying that the exchange was operating without legal registration. De Nederlandsche Bank added that the crypto company was “illegally offering services” and “offering illegal custodial wallets” for users.
Adding to the drama, on December 16, Mazars Group, a company known for its proof-of-reserve auditing services for cryptocurrency companies, reportedly removed recent documents detailing exchange audits from its website. The firm was previously appointed as the official auditor for Binance’s proof-of-reserve updates, a move that was followed by Kucoin and Crypto.com.
The Bitcoin mining sector has also been affected by the sharp correction in cryptocurrency prices and rising energy costs. Publicly traded miner Core Scientific has been offered a $72 million emergency standby credit line to avoid bankruptcy. The financial lender requires the suspension of all payments to Core Scientific equipment lenders as long as Bitcoin remains below $18,500.
The 4.7% weekly drop in total market capitalization was mainly affected by the negative 5.4% price movement of Ether (ETH) and BNB, which were trading 15.1% lower. Consequently, the bearish sentiment affected altcoins significantly, with 14 of the top 80 coins dropping 12% or more in the period.
Open Network (TON) gained 30% after Telegram launched a bid for anonymous phone numbers sold for TON tokens.
Bitcoin SV (BSV) rallied 11.7% after Craig Wright, the self-proclaimed Satoshi Nakamoto and altcoin project leader, appealed his loss in Norwegian courts.
Trust Wallet (TWT) experienced a 27.2% correction after its parent company (Binance) coped with $1.9 billion in withdrawals in 24 hours.
Leverage demand is balanced between bulls and bears
Currently, the data shows that the demand for leverage is divided between bulls and bears.
Perpetual contracts, also known as reverse swaps, have a built-in fee that is typically charged every eight hours. Exchanges use this fee 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.
The 7-day funding rate was close to zero for Bitcoin and altcoins, meaning the data points to balanced demand between leverage longs (buyers) and shorts (sellers) in the period.
Traders should also analyze the options markets to understand whether whales and arbitrage desks have placed higher bets on bullish or bearish strategies.
Put/call options volume reflects a neutral market
Traders can gauge overall market sentiment by gauging if there is more activity through call options or put options. Generally speaking, call options are used for bullish strategies while put options are for bearish strategies.
A put-to-call ratio of 0.70 indicates that put option open interest is trailing the most bullish calls by 30% and this is bullish. Conversely, an indicator of 1.40 favors put options by 40%, which can be considered bearish.
Although the Bitcoin price failed to break the $18,000 resistance on Dec. 14, there was no excessive demand for downside protection using options. More precisely, the indicator has been below 1.00, slightly optimistic, since December 12.
Currently, the put to put volume ratio sits near 0.88 because the options market is more populated by neutral to bullish strategies that favor call options by 12%.
Derivatives markets are neutral, but the news flow is negative
Despite the significant weekly price decline in a handful of altcoins and the 4.7% drop in total market capitalization, derivatives metrics reflect no signs of panic.
There has been a balanced demand for long and short positions using futures contracts. As a result, the BTC options risk assessment metric remains favorable even after Bitcoin’s 8.5% correction following the Dec. 14 high of $18,370.
Ultimately, bulls should not expect the $825 billion market cap to hold, which does not necessarily mean an immediate retest of $790 billion support.
Currently, the lower band of the ascending channel continues to exert bullish pressure, but the news flow looks favorable for the bears.
The views, thoughts and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, readers should do their own research when making a decision.