Crypto

Bullish Crypto Traders Hold On Despite Full Market Cap Rejection at $1,000

The total crypto market cap soared 29.4% in two weeks, although Bitcoin (BTC) the price stabilized near $21,000 on January 19th.

As a result, it has become increasingly difficult to justify that the 5-month downtrend still prevails after the crypto channel’s total high of $930 billion was breached. Yet the $1 trillion psychological resistance remains strong.

Total crypto market cap in USD, 2 days. Source: Trading View

The move may reflect investors becoming more bullish on risk assets after weaker-than-expected inflation metrics signaled that the U.S. Federal Reserve’s interest-rate hike strategy is expected to ease throughout 2023.

However, Klaas Knot, who is governor of the Dutch central bank, declared January 19 that the European Central Bank (ECB) “will not stop after a single hike of 50 basis points, that’s for sure”.

At the Davos forum, Knot added: “Underlying inflation has not yet turned the corner in the eurozone.”

Essentially, investors fear that another round of interest rate hikes will put further pressure on corporate earnings, triggering unemployment and a deep recession. In this case, a sell-off on the stock market becomes the base case scenario, and crypto markets would likely follow the downtrend.

To further prove the strong correlation between cryptocurrencies and stock markets, the Russell 2000 Index faced a 3.4% decline between January 18 and 19. The move coincides with the crypto’s total market cap correcting by 4% after flirting with $1 trillion. mark January 18.

The 10.4% gain in total market capitalization between Jan. 12 and Jan. 19 was primarily impacted by Bitcoin and Ether’s 10.4% gains (ETH), which increased by 8.7%. Bullish sentiment was more choppy for altcoins, with 8 of the top 80 coins gaining 20% ​​or more over the period.

Weekly winners and losers among the top 80 coins. Source: Nomics

Metaverse-related tokens rallied after tech giant Apple announced the upcoming release of its VR headset. Top engines included Decentraland (MANA) with 55%, Enjin (ENJ) with 37%, and The Sandbox (SAND) up 30%.

Frax Share (FXS) rose 40% reaching 65,000 Ether deposited on its liquid staking protocol, which currently has over US$100 million in total value locked.

Privacy coins like Monero (XMR) and ZCash (ZEC) both declined after heightened regulatory risks and the US Department of Justice announced the arrest of the founder of Bitzlato, a peer-to-peer crypto exchange.

Demand for Leveraged Bullish Bets Grows

Perpetual contracts, also known as reverse swaps, have an embedded rate that is typically charged every eight hours. Exchanges use these fees to avoid currency risk imbalances.

A positive funding rate indicates that longs (buyers) require more leverage. However, the opposite situation occurs when the shorts (shorts) require additional leverage, causing the funding rate to become negative.

Perpetual futures accumulated the 7-day funding rate on January 19. Source: Coinglass

The 7-day finance rate was positive in all cases, meaning the data points to higher demand from long-term buyers (buyers) over the period. Still, being charged 0.25% per week to keep their bullish trades open shouldn’t be a major concern for most investors.

Thus, traders should analyze the options markets to understand whether whales and arbitrage desks have placed higher bets on bullish or bearish strategies.

Investors Not Afraid of Dips, Says BTC Options

Traders can gauge overall market sentiment by measuring whether more activity is going through call options (buy) or put options (sell). Generally speaking, call options are used for bullish strategies, while put options are used for bearish strategies.

A put-call ratio of 0.70 indicates that the open interest of put options lags the most bullish calls by 30% and is therefore bullish. On the other hand, an indicator at 1.40 favors put options by 40%, which can be considered bearish.

Put-call ratio of BTC options volume. Source: laevitas.ch

Even though Bitcoin price failed to break through the $21,500 resistance on January 18, there was no sign of increased demand for downside protection. This becomes evident as put-to-call volume remained below 0.80 the entire time, even after the negative 5.5% move on January 18th.

Neutral to bearish strategies remain in high demand in the BTC options markets, favoring call options by 23%.

Related: Compass Mining sued for losing Bitcoin mining machines purchased by customers

Derivatives markets suggest support at the $930 billion level is strong

After strong gains over the past 7 days, the cryptocurrency market continues to show resilience despite warnings from a “global financial crisis” from BitMEX founder Arthur Hayes. “2023 could be as bad as 2022 until the Fed pivots,” Hayes wrote, calling this scenario a “base case.”

According to crypto derivatives metrics, there is virtually no sense of fear or lack of leveraged buy demand after the total market capitalization first missed the opportunity to break through the highs. 1 trillion dollars. These are encouraging signs, especially when combined with the technical analysis of the breakout of the descending channel.

Therefore, chances are that the previous channel top at $930 billion will become a strong support level. So, for now, even a downturn in traditional markets shouldn’t be a big concern for crypto bulls, but investors should continue to watch derivatives metrics.