The bad news continues to dominate the crypto media landscape, but Bitcoin and the broader market appear unconcerned.
Despite recent negative cryptocurrency and macroeconomic news, the total cryptocurrency market capitalization surpassed $1 trillion on January 21. An encouraging sign is that derivatives metrics are not currently showing increased demand from bearish traders.
Bitcoin price rose 8% week on week, settling near $23,100 at 18:00 UTC on Jan. 27 as markets assessed the potential impact of Genesis Capital’s bankruptcy on Jan. 19.
One source of concern is that Genesis Capital’s largest debtor is Digital Currency Group (DCG), its parent company. As a result, Grayscale fund management may be jeopardized, and investors are unsure whether Grayscale Bitcoin Trust (GBTC) assets will be liquidated. The investment vehicle currently holds more than $14 billion in Bitcoin positions for its investors.
On March 8, a United States appeals court will hear arguments in Grayscale Investment’s lawsuit against the Securities and Exchange Commission (SEC). The fund manager questioned the SEC’s decision to block the launch of their asset-backed exchange-traded fund (ETF).
Markets were also impacted by regulatory concerns after South Korean prosecutors requested an arrest warrant for Bithumb exchange owner Kang Jong-Hyun. Kang and two Bithumb executives were sentenced on charges of conducting fraudulent and illegal transactions by the Financial Investigation 2nd Division of the Seoul Southern District Prosecutor’s Office on January 25.
The 7% weekly increase in total market capitalization was hampered by Ether’s 0.3% price decline. Nonetheless, the bullish sentiment impacted altcoins significantly, with 11 of the top 80 coins gaining 18% or more during the period.
Aptos rose 91% after the smart contract network total value locked (TVL) hit a new high of $58 million, thanks to PancakeSwap DEX.
Fantom gained 50% following the announcement of Carmen, its new database system, and Tosca, a new Fantom Virtual Machine.
Optimism (OP) gained 21% as transaction volumes increased dramatically during an NFT incentive program called Optimism Quest.
Perpetual contracts, also known as inverse swaps, typically charge an embedded rate every eight hours. This fee is used by exchanges to avoid exchange risk imbalances.
A positive funding rate indicates that longs (buyers) are looking for more leverage. The opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to fall.
The 7-day funding rate for Bitcoin and Ethereum was positive, indicating slightly higher demand for leverage longs (buyers) versus shorts (sellers). Even so, a 0.25% weekly funding cost is insufficient to deter leverage buyers.
Aptos was the only exception, with a negative 0.6% weekly funding cost, implying that short sellers were paying to keep their positions open. This movement is explained by the 91% rally in 7 days, which indicates that sellers are expecting some sort of technical correction.
Traders can gauge the overall sentiment of the market by determining whether more activity is occurring through call (buy) options or put (sell) options. Call options are typically used for bullish strategies, whereas put options are used for bearish ones.
A put-to-call ratio of 0.70 indicates that put options open interest lags behind more bullish calls by 30% and is thus bullish. A 1.40 indicator, on the other hand, favors put options by 40%, which can be interpreted as bearish.
Despite Bitcoin’s failure to break through the $23,300 resistance level, demand for bullish call options has outpaced that for neutral-to-bear puts since January 6.
The put-to-call volume ratio is currently near 0.50, indicating that the options market is more heavily populated by neutral-to-bullish strategies, with call (buy) options outnumbering put options by 50%.
There is no evidence of short seller demand after the third consecutive week of gains, which total 40% year to date when stablecoins are excluded. More importantly, leverage indicators show that bulls are not overly leveraging.
The derivatives markets indicate further upside potential, and even if the market returns to the $950 billion market capitalization of January 18, there is no reason to panic. Whales and market makers are currently favoring neutral-to-bullish strategies in Bitcoin option markets.
Finally, the odds favor those betting that the $1 trillion total market cap will hold, allowing for additional gains.
