The total cryptocurrency market capitalization hit its highest level in more than two months on Jan. 13 after surpassing the $900 billion mark on Jan. 12.
While the 15.5% year-to-date gain looks promising, the level is still 50% below the $1.88 trillion market cap seen before the Terra-Luna ecosystem crashed. in April 2022.
“Hopeful skepticism” is probably the best description of most investors’ sentiment right now, especially after the recent battles to reclaim a $1 trillion market capitalization in early November. This rally to $1 trillion was followed by a 27.6% correction in three days and invalidated any bullish momentum traders might have expected.
Bitcoin (BTC) has gained 15.7% year-to-date, but a different storyline has emerged for altcoins, with a handful gaining 50% or more over the same period. Some investors attribute the recovery to US Consumer Price Index (CPI) data released on January 12, which confirmed the thesis that inflation was continuing to fall.
While macroeconomic conditions may have improved, the situation for cryptocurrency companies looks grim. New York-based Metropolitan Commercial Bank (MCB) announced on Jan. 9 that it would shut down its crypto-asset vertical, citing changes in the regulatory landscape and recent industry setbacks. Crypto-related customers accounted for 6% of the bank’s total deposits.
On January 12, the United States Securities and Exchange Commission (SEC) accused cryptocurrency lending firm Genesis Global Capital and crypto exchange Gemini of offering unregistered securities through the “Earn” program of Gemini.
A final blow came on January 13 after Crypto.com announced a new round of layoffs on January 13, cutting the global workforce by 20%. Other crypto exchanges that have recently announced job cuts over the past month include Kraken, Coinbase, and Huobi.
Despite the dire news flow, macroeconomic tailwinds favoring risky assets ensured that only UNUS SED (LEO) closed the first 13 days of 2023 in the red.
Lido DAO (LDO) gained 108% as investors expect Ethereum Shanghai’s upcoming upgrade that allows staked Ether withdrawals to drive demand for liquid staking protocols.
Aptos (APT) rebounded 98% after some decentralized apps started gaining volume, including Liquidswap DEX, Ditto Finance staking and yield, and NFT market Topaz Market.
Optimism (OP) gained 70% after the Layer 2 network picked up activity and, combined with competitor Arbiturm, outpaced Ethereum mainchain transactions.
Leverage demand is balanced between bulls and bears
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.
The 7-day funding rate was close to zero for Bitcoin and altcoins, meaning the data points to balanced demand between longs (buyers) and shorts (sellers).
If bears pay 0.3% per week to maintain their leveraged bets on Solana (SOL) and BNB, that’s only 1.2% per month, which is irrelevant for most traders.
Related: Bitcoin price climbs to $19,000, but analyst says retest of $17,300 could come next
Trader demand for neutral to bullish options has increased
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%, which is bullish. On the other hand, an indicator at 1.40 favors put options by 40%, which can be considered bearish.
Between January 4 and 6, protective put options dominated the space as the indicator rose above 1. The move eventually faded and the opposite situation emerged, demand for neutral to bullish call options being in excess since January 1st. 7.
Lack of leveraged shorts and demand for protections point to a bullish trend
Given the 15.7% gain since the start of 2023, derivatives metrics do not reflect any signs of demand from leveraged shorts or protective puts. While bulls may be glad that the $900 billion total market cap resistance met little resistance, derivatives metrics show that bears are still patiently waiting for an entry point for their shorts.
Given the bearish news in the market, the main hope for the bulls remains only in the context of a favorable macroeconomic environment, which largely depends on how the retail sales data will report next week.
China is also expected to release its economic figures on January 16 and the United States will do the same on January 18. Another potential price impact could be the UK CPI print due out on January 18th.
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