Cryptocurrency market capitalization fell 24% between November 8th and November 10th, reaching a low of $770 billion. But after the initial panic subsided and forced future contract liquidations stopped weighing on asset prices, a sharp 16% recovery followed.
This week’s decline was not the first rodeo in which the market fell below the $850 billion market cap level, as a similar pattern emerged in June and July. In both cases, the support showed strength, but his $770 billion intraday bottom on Nov. 9 was the lowest since December 2020.
The 17.6% weekly decline in total market capitalization was mainly affected by Bitcoin (BTC)’s 18.3% loss and Ether (ETH)’s negative price movement of 22.6%. Still, the impact on altcoin prices was more severe, with 8 of the top 80 coins dropping more than 30% over the period.
FTX Token (FTT) and Solana (SOL) have been severely impacted by liquidations following the bankruptcies of FTX exchange and Alameda Research.
Aptos (APT) fell 33%, Denial of Rumors A treasure trove of Aptos Labs or the Aptos Foundation held by FTX.
Stablecoin Demand Remains Neutral in Asia
The USD Coin (USDC) premium is a good indicator of demand for China-based retail traders of cryptocurrencies. Measures the difference between China-based peer-to-peer transactions and the US dollar.
Excessive buying demand tends to put pressure on indicators above 100% fair value, and in bear markets, stablecoins are flooded with market offers, resulting in discounts of 4% or more.
The USDC premium is currently at 100.8%, flat compared to the previous week. Thus, there was no panic selling by Asian retail investors despite the 24% drop in cryptocurrency market capitalization.
However, this data should not be viewed as bullish as the USDC buying pressure shows that traders are taking refuge in stablecoins.
Few leveraged buyers use the futures market
Perpetual contracts, also known as inverse swaps, have built-in rates that are typically billed every 8 hours. Exchanges use this fee to avoid currency risk imbalances.
A positive funding rate indicates that longs (buyers) are demanding more leverage. However, the opposite situation occurs when the short (seller) requires additional leverage, resulting in a negative funding rate.
As noted above, the 7-day funding rate is slightly negative for the two largest cryptocurrencies, with data indicating excessive demand for shorts (sellers). There is a 0.40% weekly cost to maintain open positions, but don’t worry.
Traders should also analyze the options market to understand whether whales and arbitrage desks have placed high bets on bullish or bearish strategies.
Related: Solana TVL Down Nearly A Third As FTX Turmoil Rocks Ecosystem: Finance Redefined
Options put/call ratio shows deteriorating sentiment
Traders can gauge overall market sentiment by measuring whether more activity is taking place via call (buy) or put (sell) options. Generally speaking, call options are used for bullish strategies and put options are used for bearish strategies.
A put-to-call ratio of 0.70 indicates that the put option open interest lags the more bullish call by 30% and is therefore bullish. In contrast, if the indicator is 1.20, the put option is 20% better and can be considered bearish.
Investors scrambled for downside protection as Bitcoin’s price dipped below $18,500 on November 8. As a result, the put-to-call ratio has since risen to 0.65. Still, the Bitcoin options market continues to be more populated by neutral to bearish strategies, as indicated by the current 0.63 level.
Combine the lack of demand for stablecoins in Asia with negatively skewed perpetual contract premiums, and it’s clear that traders aren’t happy with the $850 billion market cap support being sustained in the short term.
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