Despite the recent negative crypto and macroeconomic news, the total cryptocurrency market cap broke above $1 trillion on Jan. 21. An encouraging sign is that derivatives metrics are not currently showing increased demand from bearish traders.
Total crypto market cap in USD, 1 day. Source: TradingView
Bitcoin (BTC) price gained 8% on the week, stabilizing near $23,100 at 18:00 UTC on Jan 27 as markets weighed the potential impact of Genesis Capital’s bankruptcy on Jan 19 .
One area of concern is Genesis Capital’s largest debtor, Digital Currency Group (DCG), which happens to be its parent company. As a result, the management of Grayscale funds could be at risk, leaving investors unsure whether Grayscale Bitcoin Trust (GBTC) assets could be liquidated. The investment vehicle currently holds over $14 billion worth of bitcoin positions for its holders.
A US appeals court is scheduled 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 listing of its asset-backed exchange-traded fund (ETF).
Regulatory concerns also weighed on markets after South Korean prosecutors requested an arrest warrant for Bithumb exchange owner Kang Jong-Hyun. On Jan. 25, the 2nd Division of Financial Investigations of the Seoul South District Procuratorate convicted Kang and two Bithumb executives on charges of conducting fraudulent illegal transactions.
The 7% weekly rise in total market cap was capped by the negative 0.3% price action of Ether (ETH). Still, the bullish sentiment had a significant impact on altcoins, with 11 of the top 80 coins gaining 18% or more over the period.
Weekly winners and losers among the top 80 coins. Source: Messari
Aptos (APT) surged 91% after the smart contract network’s Total Value Locked (TVL) hit a record high of $58 million, driven by PancakeSwap DEX.
Fantom (FTM) rose 50% after announcing its new database system Carmen and a new virtual Fantom machineToska.
Optimism (OP) was up 21% after a sharp surge in transaction volume during an NFT incentive program called Optimism Quest.
Leverage demand slightly favors bulls
Perpetual contracts, also known as inverse swaps, have an embedded rate that is typically calculated every eight hours. Exchanges use this fee to avoid imbalances in exchange rate risk.
A positive funding rate indicates that longs (buyers) are demanding more leverage. However, the opposite situation occurs when short sellers (sellers) need additional leverage, making the funding rate negative.
Perpetual futures 7-day cumulative funding rate on Jan 27th. Source: Coinglass
The 7-day funding rate was positive for Bitcoin and Ethereum, meaning the data points to slightly higher demand for leveraged longs (buyers) versus shorts (sellers). Still, weekly funding costs of 0.25% aren’t enough to deter leveraged buyers.
Interestingly, Aptos was the only exception as the altcoin had a negative weekly funding cost of 0.6% – meaning short sellers were paying to keep their positions open. This move can be explained by the 91% rally in 7 days and suggests that sellers are anticipating some sort of technical correction.
The options put/call ratio shows no sign of fear
Traders can gauge overall market sentiment by measuring whether more activity is coming from call (buy) options or put (sell) options. In general, call options are used for bullish strategies while put options are used for bearish strategies.
A put-to-call ratio of 0.70 indicates that the open interest of the put options lags the more bullish calls by 30% and is therefore bullish. In contrast, an indicator of 1.40 favors put options by 40%, which can be considered bearish.
BTC option volume put-to-call ratio. Source: laevitas.ch
Although bitcoin price failed to break the $23,300 resistance, demand for bullish call options has surpassed neutral-to-bear puts since Jan. 6.
Currently, the put-to-call volume ratio is close to 0.50 as the options market is more populated by neutral to bullish strategies that favor call (buy) options by 50%.
Related: Bitcoin to hit $200k before $70k bear market in next cycle – Prediction
The futures markets point to further upside potential
After the third consecutive week of gains, which is 40% year-to-date excluding stablecoins, there is no sign of demand from short sellers. More importantly, leverage indicators show that bulls are not using excessive leverage.
Derivatives markets are pointing to further upside, and even if the market revisits the $950 billion market cap seen on Jan. 18, there is no need to panic. Currently, the bitcoin options markets are showing whales and market makers favoring the neutral to bullish strategies.
Ultimately, the odds favor those who are betting that the $1 trillion total market cap will hold, opening up room for more gains.
This article does not contain any investment advice or recommendation. Every investment and trading move involves risk and readers should do their own research when making a decision.
The views, thoughts, and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.