Bullish Crypto Traders Maintain Upper Hand Despite Rejection Of Total Market Cap At $1T

The total market capitalization of cryptocurrencies increased by 29.4% in two weeks, even as the price of Bitcoin (BTC) stabilized around $21,000 on Jan. 19.

As a result, it has become increasingly difficult to justify that the 5-month downtrend still prevails after the $930 billion total crypto channel top was breached. However, the trillion-dollar psychological resistance remains strong.

Total cryptocurrency market capitalization in USD, 2 days. Source: TradingView

The move perhaps reflects investors becoming more optimistic about risky assets after weaker-than-expected inflation metrics signaled that the US Federal Reserve’s interest rate hike strategy is expected to ease throughout 2023.

However, Klaas Knot, who is the governor of the Dutch central bank, said on Jan. 19 that the European Central Bank (ECB) “won’t stop after just one 50 basis point hike, that’s for sure.”

At the Davos Knot forum he added: “core inflation has not yet turned the corner in the euro area”.

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

To further demonstrate the strong correlation between cryptocurrencies and the stock markets, the Russell 2000 Index fell 3.4% between January 18-19. I mark January 18th.

The 10.4% increase in total market capitalization between Jan. 12 and Jan. 19 was driven primarily by Bitcoin’s 10.4% gains and Ether (ETH), which traded higher by 8, 7%. Bullish sentiment has been more eventful for altcoins, with 8 of the top 80 coins gaining 20% ​​or more over the period.

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

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

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

Privacy-minded coins like Monero (XMR) and ZCash (ZEC) both fell after regulatory risks rose and the US Department of Justice announced the arrest of the founder of Bitzlato, a peer-to-peer cryptocurrency exchange -peers.

The demand for bullish leveraged bets is increasing

Perpetual contracts, also known as reverse swaps, have a built-in fee that is usually charged every eight hours. Exchanges use this fee to avoid currency risk imbalances.

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

Accumulated 7-day financing rate on perpetual futures on January 19. Source: Coinglass

The 7-day funding rate was positive however, meaning the data points to higher demand for long leverage (buyers) over the period. However, charging 0.25% per week to keep bullish trades open shouldn’t be a significant concern for most investors.

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

Investors are not afraid of dips, according to BTC options

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

A put-call ratio of 0.70 indicates that put options lag more bullish calls by 30% and is therefore bullish. Conversely, an indicator of 1.40 favors put options by 40%, which can be considered bearish.

Ratio of puts to calls of BTC options volume. Source: laevitas.ch

Even though the price of Bitcoin failed to clear the $21,500 resistance on Jan. 18, there were no signs of increased demand for downside protection. This becomes apparent as put-to-call volume has remained below 0.80 throughout, even after the negative 5.5% move on January 18th.

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

Related: Compass Mining Sued Over Losing Bitcoin Mining Machines Purchased By Customers

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

After solid gains over the past 7 days, the cryptocurrency market continues to show resilience despite warnings of a “global financial meltdown” from BitMEX founder Arthur Hayes. “2023 could be just as bad as 2022 until the Fed changes,” Hayes wrote, calling that scenario his “base case.”

According to crypto derivatives metrics, there is almost no sense of fear or absence of demand to buy leverage after the total market capitalization misses the opportunity to cross the trillion mark for the first time of dollars. These are encouraging signs, especially when combined with the technical analysis of the breakout of the descending channel.

As a result, the odds favor the former channel above $930B becoming a strong support level. So for now, even a downturn in traditional markets shouldn’t be a major concern for crypto bulls, but investors should continue to monitor derivatives metrics.