Despite the recent flow of negative macroeconomic news regarding digital assets, the total capitalization of the cryptocurrency market surpassed $1 trillion on January 21. An encouraging sign is that derivatives metrics are not showing increased demand from bearish traders at the moment.
Bitcoin (BTC) price gained 8% on the week, stabilizing near the $23,100 level as of 18:00 UTC on January 27, as markets weighed the potential impact of the Genesis Capital bankruptcy on January 19. .
One area of concern is that Genesis Capital’s largest debtor is Digital Currency Group (DCG), which happens to be its parent company. Consequently, Grayscale’s fund management could be at risk, making investors uncertain whether Grayscale Bitcoin Trust (GBTC) assets could face liquidation. The investment vehicle currently has over $14 billion worth of Bitcoin positions for its holders.
A US appeals court is set to hear arguments related to Grayscale Investment’s lawsuit against the Securities and Exchange Commission (SEC) on March 8. The fund manager questioned the SEC’s decision to deny the launch of its asset-backed exchange-traded fund (ETF). .
Regulatory concerns also weighed on markets after South Korean prosecutors requested an arrest warrant for Bithumb owner Kang Jong-Hyun. On January 25, the Second Financial Investigation Division of the Seoul Southern District Prosecutor’s Office convicted Kang and two Bithumb executives on charges of conducting fraudulent illegal transactions.
The 7% weekly rise in total market capitalization was held back by the negative 0.3% price movement of Ether (ETH). Still, the bullish sentiment affected altcoins significantly, with 11 of the top 80 coins gaining 18% or more in the period.
Aptos (APT) gained 91% after the total value locked (TVL) of the smart contract network hit a record $58 million, driven by PancakeSwap DEX.
Fantom (FTM) rallied 50% after the announcement of its new database system, Carmen, and a new fantom virtual machineRough.
Optimism (OP) faced gains of 21% after a sharp increase in transaction volumes during an NFT incentive program called Optimism Quest.
Leverage demand slightly favors bulls
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 positive for Bitcoin and Ethereum, which means that the data points to slightly higher demand for long (buyers) vs. short-term (sellers) leverage. Still, a weekly financing cost of 0.25% is not enough to discourage leveraged buyers.
Interestingly, Aptos was the only exception, as the altcoin posted a negative 0.6% weekly funding cost, meaning short sellers were paying to keep their positions open. This move can be explained by the 7-day 91% rally and suggests that sellers are waiting for some type of technical correction.
Option put/call ratio shows no signs of fear
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 long to short ratio of 0.70 indicates that the open interest of put options lags the most bullish call options by 30% and is therefore a positive. On the contrary, an indicator of 1.40 favors put options by 40%, which can be considered negative.
Even though Bitcoin price failed to break the $23,300 resistance, demand for bullish call options has outpaced neutral put options since Jan. 6.
Currently, the volume ratio between put and put options is close to 0.50, as the options market is more populated by neutral to bullish strategies, favoring call options by 50%.
Derivatives markets point to further upside potential
After the third straight week of gains, totaling 40% year-to-date if stablecoins are excluded, there are no signs of demand from short sellers. More importantly, the leverage indicators show that the bulls are not using excessive leverage.
Derivatives markets point to further upside potential and even if the market revisits the $950 billion market cap on January 18, there is no reason to panic. Currently, the Bitcoin options markets show whales and market makers favoring neutral to bullish strategies.
Ultimately, the odds favor those who bet that the total market capitalization of one trillion will hold, opening up room for further gains.
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