Total cryptocurrency market capitalization reached its highest level in more than two months on January 13, after breaking the $900 billion mark on January 12.
While the 15.5% year-to-date gain sounds promising, the level is still 50% below the $1.88 trillion cryptocurrency market cap seen before the Terra-Luna ecosystem collapsed in April 2022. .
“Hopeful skepticism” is probably the best description of most investor sentiment at the moment, especially after the recent struggles to recapture a trillion-dollar capitalization in early November. That rally to $1 trillion was followed by a 27.6% correction in three days and negated any bullish momentum traders might have hoped for.
Bitcoin (BTC) has gained 15.7% so far this year, but in the case of altcoins the scenario has been different: a handful of them have gained 50% or more in the same period. Some investors attribute the rebound to US Consumer Price Index (CPI) data released on January 12, which confirmed the view that inflation was still falling.
Although macroeconomic conditions may have improved, the situation for cryptocurrency companies looks less than hopeful. New York-based Metropolitan Commercial Bank (MCB) announced on Jan. 9 that it was shutting down its crypto-assets vertical, citing changes in the regulatory landscape and recent setbacks in the sector. Cryptocurrency-related clients accounted for 6% of the bank’s total deposits.
On Jan. 12, the United States Securities and Exchange Commission (SEC) charged cryptocurrency lending firm Genesis Global Capital and cryptocurrency exchange Gemini with offering unregistered securities through Gemini’s “Earn” program.
One final blow came on January 13 after Crypto.com announced a new wave of layoffs, cutting global staff by 20%. Other exchanges that have announced staff cuts in the past month include Kraken, Coinbase, and Huobi.
Despite the dire news flow, macroeconomic tailwinds favoring risk assets ensured that only UNUS SED (LEO) closed the first 13 days of 2023 in the red.
Lido DAO (LDO) gained 108% as investors expect Ethereum’s upcoming Shanghai upgrade, which allows for the withdrawal of staked Ether, to boost demand for liquid staking protocols.
Aptos (APT) rose 98% after some decentralized applications started to gain volume, such as Liquidswap DEX, Ditto Finance and the NFT market; Topaz Market.
Optimism (OP) gained 70% after the Layer 2 network picked up activity and, combined with its competitor Arbiturm, outperformed the Ethereum mainnet in transactions.
Leverage demand is 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 the 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 7-day funding rate was close to zero for Bitcoin and altcoins, meaning the data points to a balanced demand between longs (buyers) and shorts (sellers) of leverages.
If the bears are paying 0.3% a week to maintain their leveraged bets on Solana (SOL) and BNB, that adds up to a mere 1.2% a month, which is not relevant to most traders.
Demand for neutral to bullish options increases
Traders can gauge overall market sentiment by measuring whether there is more activity through call or put options. In general, call options are used for bullish strategies, while put options are used for bearish ones.
A put to call option ratio of 0.70 indicates that the open interest for put options is 30% less than that for call options, which is bullish. Conversely, an indicator of 1.40 favors put options by 40%, which can be considered bearish.
Between January 4-6, protective puts dominated the space, as the indicator spiked above 1. Over time, the move faded and the opposite situation emerged, as demand for call options neutral to bullish has been excessive since January 7.
Lack of leveraged shorts and demand for protective puts point to an uptrend
Considering the 15.7% gain since the start of 2023, derivatives metrics reflect zero demand signals for leveraged shorts or protective puts. While bulls may celebrate that the $900 billion total market cap resistance was met with little resistance, derivatives metrics show that bears are still patiently waiting for an entry point for their short positions.
Considering the bearish news flow in the market, the main hope of the bulls remains solely in the context of a favorable macroeconomic environment, which is highly dependent on how the retail sales data turns out next week.
China is also expected to release its economic figures on January 16 and the United States on January 18. Another possible impact on prices could be the UK CPI, which is due to be released on January 18.
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