Total crypto market cap drops to $840B, but derivatives data shows traders are neutral.

Total crypto market cap drops to $840B, but derivatives data shows traders are neutral.

Total crypto market cap drops to $840B, but derivatives data shows traders are neutral.

Pressure from regulators keeps stopping each breakout to the upside, but data shows some strong reasons why the crypto market will eventually go up.

In the past week, the total market capitalization of all cryptocurrencies has gone down by 1.5% to $840 billion. The slightly negative movement did not break the rising channel that started on November 12, but the overall mood is still negative and losses so far this year are 64%.

The price of Bitcoin fell 0.8% over the course of the week. At 10:00 UTC on Dec. 8, the price was stable near $16,800, but it broke above $17,200 later that day. Discussions about how to regulate crypto markets put pressure on the markets, and the collapse of the FTX exchange made traders less interested in buying. This made lawmakers focus on the possible effects on financial institutions and the lack of protection for small investors.

The Financial Crimes Enforcement Network (FinCEN) said on December 6 that it is “carefully looking” at decentralised finance (DeFi). The agency’s acting director, Himamauli Das, said that digital asset ecosystems and digital currencies are a “key priority area.” In particular, the regulator was worried about DeFi’s “potential to reduce or eliminate the role of financial intermediaries,” which are important to its efforts to stop money laundering and terrorist financing.

The Hong Kong legislative council passed a new licencing system for companies that provide services for virtual assets. From June 2023 on, cryptocurrency exchanges will have to follow the same laws as banks and other financial institutions. Before getting a licence to operate, companies will have to take stricter steps to stop money laundering and protect investors because of the change.

In the meantime, Australian financial regulators are working hard on ways to add payment stablecoins to the rules that govern the financial sector. The Reserve Bank of Australia released a report on stablecoins on December 8. The report talked about risks to funding markets, like bank exposure and liquidity, that could happen if stablecoins were used. The Terra-Luna ecosystem collapse was used as an example to show how fragile algorithmic stablecoins are.

The 1.5% weekly drop in market capitalization was mostly caused by a 3% drop in the price of Ether and a 2.5% drop in the price of BNB. Still, the bearish mood had a big effect on altcoins. Ten of the top 80 coins fell by 8% or more during the time period.

The top 80 coins both win and lose every week. Source: Nomics Trust Wallet (TWT) went up 18.6% after the launch of the browser extension wallet in mid-November, which helped the service provider gain market share.

After a huge 89% drop since the first quarter of 2022, investors changed their expectations, which caused Axie Infinity Shards to go up by 17.6%.

Chainlink’s price went down by 10.1% after its staking programme gave early access on December 6. This shows that investors were ready for the event.

1INCH fell 15.2% after 15% of the supply became available on December 1. This was part of the original four-year schedule.

Bulls and bears have the same amount of demand for leverage.

Inverse swaps, which are another name for perpetual contracts, have a built-in rate that is usually charged every eight hours. This fee is used by exchanges to prevent exchange risk imbalances.

If the funding rate is positive, it means that buyers (longs) want more leverage. But the opposite happens when shorts (sellers) want more leverage, which makes the funding rate go negative.

The seven-day funding rate for Bitcoin and altcoins was close to zero. This means that the demand from leveraged longs (buyers) and shorts (sellers) was about equal during that time.

Traders should also look at the options markets to see if whales and arbitrage desks have put more money on bullish or bearish strategies.

The options put/call ratio shows that bullishness is moderate.

Traders can figure out how people feel about the market as a whole by looking at whether more activity is going through call options (to buy) or put options (to sell). In general, bullish strategies use call options, while bearish strategies use put options.

A put-to-call ratio of 0.70 means that the number of open put options is 30% less than the number of open calls, which is bullish. A 1.40 indicator, on the other hand, favours put options by 40%, which can be thought of as bearish.

Even though Bitcoin’s price didn’t break through the $17,500 barrier on December 5, there was only a short-term rush to buy options to protect against losses.

At the moment, the put-to-call volume ratio is around 0.40. This is because there are more neutral-to-bearish strategies on the options market, which makes call (buy) options 60% more popular.

The derivatives markets show that there could be a rise.

Even though the prices of a few altcoins fell this week and the total market capitalization fell by 2%, derivatives metrics show that sentiment has not changed.

Futures contracts offer a good amount of leverage, and the BTC options risk assessment metric is still positive even though Bitcoin’s price hasn’t been able to break above $17,500.

So, those who think the ascending channel will win and push the total market capitalization to the $875 billion resistance are more likely to be right. After a week of bad news, a break above the channel would give bulls a chance to catch their breath.

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