Cryptocurrency markets experienced a relatively quiet month in February as total market capitalization increased by 4% over the period. However, fear of regulatory pressure seems to have weighed on volatility in March.
The bulls are sure to miss the technical pattern that has driven the total crypto market capitalization upwards for the last 48 days. Unfortunately, not all trends last forever and the price correction of 6.3% on March 2nd was enough to break below the ascending channel support level.
As shown above, the uptrend channel that started in mid-January saw its lower market cap burst at $1.025 trillion after Silvergate Bank, a major cryptocurrency player, saw its shares fall 57.7% on the New York Stock Exchange on March 2. Silvergate announced “extra losses” and sub-optimal capitalization, potentially triggering a bank run that could spiral out of control.
Silvergate provides financial infrastructure services to the world’s largest cryptocurrency exchanges, institutional investors and mining companies. As a result, clients were encouraged to seek alternatives or sell their positions to reduce their exposure to the crypto sector.
On March 2, bankrupt cryptocurrency exchange FTX revealed a “massive shortfall” of its digital assets and fiat currencies, contrary to earlier estimates that $5 billion could be recovered in cash and liquid crypto positions. On February 28, FTX’s former technical director Nishad Singh pleaded guilty to electronic fraud charges as well as electronic and commodity fraud conspiracy.
Due to the lack of customer funds worth billions of dollars from the exchange and its US-based FTX US branch, there are less than $700 million in liquid assets. In total, FTX recorded a deficit of $8.6 billion across all wallets and accounts, while FTX US posted a deficit of $116 million.
The 4% weekly drop in total market capitalization since Feb. 24 was driven by Bitcoin (BTC) falling 4.5% and Ether (ETH) falling 4.8%. As expected, only six of the top 80 cryptocurrencies had positive results in the last seven days.
EOS gained 9% after the EOS Network Foundation announced the final testnet for the Ethereum VM launch on March 27.
Immutable X (IMX) increased 5% as the project became a “Unity Verified Solution”, reportedly allowing seamless integration with the Unity SDK.
DYdX (DYDX) is down 14.5% as investors wait to unlock the $17 million token on March 14.
The demand for leverage is balanced despite the recent price correction
Perpetual contracts, also known as reverse swaps, have a built-in rate that is usually charged every eight hours. Exchanges use this fee to avoid currency risk imbalances.
A positive funding rate indicates that long positions (buyers) require more leverage. However, the opposite is true when shorts (sellers) require additional leverage, which causes the funding rate to become negative.
The seven-day funding rate was slightly positive for Bitcoin and Ether, reflecting balanced demand between long (buyers) and short (sellers) futures positions. The only exception was a slightly higher betting demand relative to the BNB (BNB) rate, although it was far from the alarming 0.2% per week.
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The put/call ratio reflects traders’ optimism
Traders can gauge the overall market sentiment by measuring whether more activity is taking place via call (call) options or put (put) options. In general, call options are used in bullish strategies while put options are used in bearish strategies.
A put-to-call ratio of 0.70 indicates that open puts lag behind more bullish calls and are therefore bullish. In contrast, a ratio of 1.40 favors put options that can be considered bearish.
Apart from a brief moment on March 2 when the price of Bitcoin dropped to $22,000, the demand for bullish call options has since crossed neutral to bearish since February 25. Moreover, the current sell-to-buy volume ratio of 0.71 shows that the Bitcoin options market is more heavily populated with neutral to upbeat strategies that favor call options.
From a derivatives market perspective, the market has shown resilience, so Bitcoin traders may not expect additional corrections despite the bearish indicator from the failed ascending channel. The 4% weekly drop in total market capitalization reflects the uncertainty introduced by Silvergate Bank and is unlikely to be deeply rooted enough to cause systemic risk.
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