Arthur Hayes, the former CEO of Bitmex, says that doom is coming for the crypto sector, but derivative data shows that the bulls are slowly taking control of the market.
The total crypto market capitalization rose 29.4% in two weeks, although bitcoin’s.
BTC
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$22,897
On January 19, prices stabilized near $21,000.
As a result, after breaching a total $930 billion crypto channel top, it has become increasingly difficult to justify that the five-month bearish trend is still prevailing, yet the psychological $1 trillion resistance remains strong.
Total crypto market cap in USD, 2-days. Source: TradingView
Perhaps the move reflects that investors are becoming more optimistic about risk assets, as weaker-than-expected inflation metrics suggest that U.S. stocks are becoming more optimistic
But Klassnote, who serves as governor of the Dutch central bank, explained on January 19 that the European Central Bank (ECB) “will not stop after a single 50 basis point hike, that’s for sure”.
“Core inflation in the eurozone has not yet turned a corner,” Knott added at the Davos forum.
In essence, investors fear that another round of interest rate hikes could put further pressure on corporate earnings, triggering unemployment and a deeper recession. In this case, selling on the stock market is the base scenario and the crypto market will probably follow the bear trend.
To further prove the strong correlation between cryptocurrencies and the stock market, the Russell 2000 index fell 3.4% from January 18 to January 19. After this movement, January 18 flirted with the $1 trillion mark, total crypto market capitalization matches a 4% improvement. . . . .
The 10.4% increase in total market capitalization from Jan. 12 to Jan. 19 was primarily driven by the 10.4% rise in Bitcoin and Ether
Eth
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$1,617
, which increased by 8.7%. Bullish sentiment was more eventful for altcoins, with eight of the top 80 coins posting gains of 20% or more over the period.
Weekly winners and losers in the top 80 coins. Source: Nomix
Metaverse-related tokens have risen after tech giant Apple announced the upcoming release of its VR headset. The top drivers included Decentraland
mind
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$0.73
, increased by 55%; Engines (ENJ) up 37%; and The Sandbox
sand
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$0.72
30% ascent.
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Frax Shares (FXS) rose 40% as it reached an accumulated 65,000 ethers in its liquid betting protocol, with a total value locked in excess of U$100 million
Privacy currency like Monero
XMR
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$167
and Zcash
JEC
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$44
Both declined after regulatory risks escalated and the US Department of Justice announced the arrest of the founder of Bitzlato, a now-defunct peer-to-peer crypto exchange
Leverage rapidly increases demand for bets
Perpetual contracts, also known as inverse swaps, have an embedded rate that is typically charged every eight hours. The exchange uses this fee to avoid imbalances in exchange risk.
Positive financing rates indicate that long (buyers) are demanding more leverage. However, the opposite situation occurs when shorts (sellers) need additional leverage, making the financing rate negative.
Perpetual Futures provided 7-day funding rates on January 19. Source: Coinglass
The seven-day funding rate was positive in every case, meaning the data indicates a high demand for leveraged longs (buyers) over the period. Still, investors should have little concern beyond being charged 0.25% per week to keep their bull trades open.
Thus, traders should analyze the options market to understand whether whales and middle tables bet more on bullish or slow strategies.
According to BTC options, investors do not fear a dip
Traders can gauge the overall sentiment of the market by measuring whether most of the activity comes from call (buy) options or put (sell) options. In general, call options are used for a bullish strategy, while put options are used for a bearish strategy.
A put-to-call ratio of 0.70 indicates that put options have a 30% difference in open interest as do bull calls so therefore they are bullish. In contrast, the 1.40 index favors 40% of bag options, which can be considered bearish.
BTC Options Volume put-to-call ratio. Source: Laevitas
Although bitcoin failed to break the $21,500 resistance on January 18, there was no sign of increased demand for downside protection. This is evident when the put-to-call volume remained below 0.80 throughout, even after a 5.5% negative move on January 18th.
Demand for neutral-to-berish strategies is strong in the BTC options market, with as much as 23% favoring call (buy) options
