After gaining 11% between March 16 and March 18, the total capitalization of the crypto market has met resistance at the level of $1.2 trillion. This same level was reached on August 14, 2022 and was followed by a 19.7% drop to $960 billion in the following two weeks. During the lateralization period between March 20 and March 27, Bitcoin (BTC) gained 0.3%, while Ether (ETH) posted a modest gain of 1.6%.
One source of favorable short-term momentum is the change in the monetary policy of the Federal Reserve. The US Federal Reserve was forced to increase its balance sheet by $393 billion between March 9 and March 23 to provide short-term loans to failing banks. The goal of the plan is to reduce inflation, which has a significant impact on the cost of living and ultimately hinders economic expansion in the United States.
The balance sheet reduction bucked a nine-month trend for the central bank to raise some debt instruments, exchange-traded funds and mortgage-backed securities. This reversal of strategy was initially bullish for risk assets as the Fed acted as a lifeline for struggling banks and hedge funds.
On the other hand, the sector’s regulatory risk was heightened on March 22 when Coinbase received a Wells notice from the US Securities and Exchange Commission. Exchange staking programs, some digital asset listings, and wallet services could all be targeted by regulators. Again, this uncertainty is due to not knowing which assets qualify as securities.
These competing forces may be the main reason for some narrow trading of cryptocurrencies close to $1.18 trillion between March 17 and March 27.
Total crypto market capitalization has remained stable since March 20, with XRP rallying 22% and Litecoin (LTC) gaining 17%. XRP’s gains may be due to investors’ expectations that Ripple will win the legal battle against the SEC. As for Litecoin, analysts point to the upcoming halving in August, when the reward for mining new blocks will be cut in half.
Options traders are pretty sure it’s above $1 trillion
Traders can gauge market sentiment by measuring whether there is more activity through call (buy) or put (sell) options. Generally, call options are used for bullish strategies, while put options are for bearish ones.
A put-to-call ratio of 0.70 indicates that the put option’s open interest lags behind the greater number of call options. In contrast, the 1.40 indicator favors options, which is a bearish sign.
Since March 10, Bitcoin’s put-to-call ratio has been balanced or favoring neutral-to-bullish call options. Although the price of Bitcoin has risen by 41% in the past two weeks, options traders indicated that they are not worried about a price correction.
related: Will BTC break the bear market? 5 things to know in Bitcoin this week
Demand for leverage is balanced despite resistance at $1.2 trillion
A perpetual contract, also known as a reverse 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.
In the past week, the seven-day funding level for the majority of major cryptocurrencies has been neutral, indicating that no excessive buying leverage is being used to support prices. This translates into firepower for bulls, if needed, and significantly reduces the risk of liquidation.
The only exception is BNB, where short sellers pay 1.25% per week to maintain their positions. Regulatory uncertainty surrounding the Binance exchange may be behind the whales’ interest in shorting BNB.
The recent rally looks sustainable from a derivative perspective and the bull is in a good position to defend against future declines. However, since the rise in crypto prices may be fueled by the Fed’s emergency action to avoid a banking crisis, the odds favor lateral price movements.
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.