The Cryptocurrency market experienced a relatively quiet month in February as the total market capitalization gained 4% in the period. However, fears of regulatory pressures appear to have had an impact on volatility in March.
Bulls will certainly miss the technical pattern that led the total crypto market capitalization up over the past 48 days. Unfortunately, not all trends last forever, and the 6.3% price correction on March 2 was enough to break below the support level of the upward channel.
As shown above, the uptrend that started in mid-January saw the $1.025-trillion market cap break after Silvergate Bank, a major player in crypto on- and off-ramping, saw shares plunge 57.7% on the New York Stock Exchange on March 2. Silvergate announced “additional losses” and suboptimal capitalization, potentially triggering a bank run that could lead to a situation spiraling out of control.
Silvergate provides financial infrastructure services to some of the world’s largest cryptocurrency exchanges, institutional investors and mining companies. Consequently, clients are driven to find alternative solutions or sell their positions to reduce their exposure to the crypto sector.
On March 2, the bankrupt cryptocurrency exchange FTX announced a “large shortfall” in digital assets and fiat currency holdings, contrary to previous estimates that $5 billion could be recovered in cash and liquid crypto positions. On February 28, former FTX engineering director Nishad Singh pleaded guilty to wire fraud charges along with wire and commodity fraud conspiracy.
With billions of customer funds lost from the exchange and its US-based arm, FTX US, there is 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 recorded a deficit of $116 million.
The 4% weekly decline in total market capitalization since February 24 was driven by a 4.5% loss in Bitcoin (BTC) and a 4.8% decline in Ether (ETH). As expected, there are only six of the top 80 cryptocurrencies with positive performance over the past seven days.
EOS gained 9% after the EOS Network Foundation announced the final testnet for the launch of the Ethereum Virtual Machine on March 27.
Immutable X (IMX) traded up 5% as the project became a “Unity Verified Solution,” reportedly allowing seamless integration with the Unity SDK.
DYdX (DYDX) is trading down 14.5% as investors await the $17 million token unlock on March 14.
Demand for leverage is balanced despite the recent price correction
A perpetual contract, also known as an inverse swap, has a fixed rate that is usually filled every eight hours. Exchanges use this fee to prevent exchange risk imbalances.
A positive funding level indicates that longs (buyers) are demanding more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to become negative.
The seven-day funding level is slightly positive for Bitcoin and Ether, reflecting a balanced demand between leveraged longs (buyers) and shorts (sellers) using continuous futures contracts. The only exception is a slightly higher demand for bets on the price of BNB (BNB), although it is far from the alarming level at 0.2% per week.
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The put/call option ratio reflects the trader’s optimism
Traders can gauge the overall sentiment of the market by measuring whether there is more activity 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 other bullish calls and are therefore bullish. In contrast, the 1.40 indicator favors options, which can be considered bearish.
Apart from the brief moment on March 2 when the price of Bitcoin traded down to $22,000, demand for bullish call options has exceeded neutral-to-bearish puts since February 25. Moreover, the current 0.71 put-to-call volume ratio shows that. The Bitcoin options market is more strongly populated by neutral-to-bullish strategies that favor call (buy) options.
From a derivatives market perspective, the market is showing resilience, so Bitcoin traders may not expect additional corrections despite bearish indicators of a failed upward channel. The 4% weekly decline in total market capitalization reflects the uncertainty brought by Silvergate Bank, and is unlikely to have deep enough roots to cause systemic risk.
The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making decisions.