Despite the recent negative crypto and macroeconomic news flow, the total cryptocurrency market capitalization broke above $1 trillion on January 21st. An encouraging sign is that derivative metrics are not showing increased demand from bearish traders at the moment.
The price of Bitcoin (BTC) gained 8% for the week, stabilizing near the $23,100 level at 18:00 UTC on January 27, as markets weighed the potential impact of Genesis Capital’s bankruptcy on January 19 from January
One area of concern is Genesis Capital’s largest debtor is Digital Currency Group (DCG), which happens to be its parent company. Therefore, Grayscale’s fund management could be at risk, so investors are not sure if the assets of Grayscale Bitcoin Trust (GBTC) could face liquidation. The investment vehicle currently holds over $14 billion worth of Bitcoin positions for its holders.
The US Supreme Court is set to hear arguments in Grayscale Investment’s lawsuit against the Securities and Exchange Commission (SEC) on March 8. The fund manager questioned the SEC’s decision to deny its launch of an asset-backed exchange-traded fund (ETF). .
Regulatory concerns also negatively impacted the markets after South Korean prosecutors requested an arrest warrant for Bithumb exchange owner Kang Jong-Hyun. On January 25, the Financial Investigation 2nd Division of the Seoul South District Prosecutor’s Office convicted Kang and two Bithumb executives on charges of conducting fraudulent illegal transactions.
The 7% weekly increase in total market capitalization was restrained by the negative price movement of 0.3% of Ether (ETH). However, the bullish sentiment significantly affected altcoins, with 11 of the top 80 coins gaining 18% or more in the period.
Aptos (APT) gained 91% after the total value locked (TVL) of smart contract network reached a record 58 million dollars, fueled by PancakeSwap DEX.
Fantom (FTM) rallied 50% after the announcement of its new database system, Carmen, and new Phantom Virtual MachineTosca
Optimism (OP) faced 21% gains after a sharp increase in transaction volumes during an NFT incentive program called Optimism Quest.
Leverage requirement slightly favors bulls
Perpetual contracts, also known as reverse swaps, have an embedded rate usually charged every eight hours. Exchanges use this fee to avoid exchange risk imbalances.
A positive financial indicator indicates that longs (buyers) require more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the financial index to become negative.
The 7-day financial index was positive for Bitcoin and Ethereum, which means the data points to slightly higher demand for leveraged longs (buyers) versus shorts (sellers). However, a 0.25% weekly finance charge is not enough to deter leveraged buyers.
Interestingly, Aptos was the only exception as the altcoin presented a negative 0.6% weekly financing cost – meaning that short sellers paid to keep their positions open. This movement can be explained by the 91% rally in 7 days and it suggests that sellers are waiting for some kind of technical correction.
The option put/call ratio shows no signs of fear
Traders can gauge the general sentiment of the market by measuring whether more activity is going through call (buy) options or put (sell) options. Generally, call options are used for bullish strategies, while put options are for bearish ones.
A 0.70 put-to-call ratio indicates that put options open interest lags the more bullish calls by 30% and is therefore bullish. In contrast, a 1.40 indicator favors put options by 40%, which can be considered bearish.
Although the price of Bitcoin failed to break the $23,300 resistance, the demand for bullish call options exceeded the neutral-to-puts since January 6.
Currently, the call volume ratio stands near 0.50, as the options market is more heavily populated by neutral to bullish strategies, favoring call (buy) options at 50%.
Related: Bitcoin to hit $200K before $70K ‘bear market’ next cycle – Prediction
Derivatives markets show further upside potential
After the third consecutive week of gains totaling 40% year to date excluding stablecoins, there are no signs of demand from short sellers. More importantly, leverage indicators show that bulls are not using excessive leverage.
Derivatives markets point to further upside potential and even if the market revisits the market capitalization of $950 billion as of January 18, there is no reason to panic. Currently, Bitcoin options markets are showing whales and market makers favoring the neutral-to-bullish strategies.
Ultimately, the odds favor those betting that the total market cap of $1 trillion will hold, opening room for further gains.
This article does not contain investment advice or recommendations. Every investment and business move involves risk, and readers should do their own research when making a decision.
The views, thoughts and opinions expressed here are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.