The total cryptocurrency market capitalization reached its highest level in more than two months on January 13 after breaking above the $900 billion mark on January 12.
While the 15.5% year-to-date gain sounds promising, the level is still 50% below the $1.88 trillion crypto market cap seen before the Terra-Luna ecosystem collapses in April 2022.
“Expectant skepticism” is perhaps the best description of investor sentiment today, especially after the recent struggle to capture the $1 trillion market capitalization in early November. The rally to $1 trillion was followed by a 27.6% correction in three days and invalidated the bullish momentum that traders could have hoped for.
Bitcoin (BTC) has gained 15.7% annually, but a different scenario has emerged for altcoins, with some gaining 50% or more in the same period. Some investors attributed the rally to the US Consumer Price Index (CPI) data released on January 12, which confirmed the thesis that inflation continued to decline.
While macroeconomic conditions may be improving, the situation for cryptocurrency companies looks bleak. New York-based Metropolitan Commercial Bank (MCB) announced on January 9 that it will close its crypto-asset vertical, citing changes in the regulatory landscape and recent setbacks in the industry. Crypto-related clients account for 6% of the bank’s total deposits.
On January 12, the US Securities and Exchange Commission (SEC) charged cryptocurrency lender Genesis Global Capital and crypto exchange Gemini with offering unregistered securities through Gemini’s “Get” program.
The final blow came on January 13 after Crypto.com announced a new wave of staff layoffs on January 13, reducing its global workforce by 20%. Other crypto exchanges that have recently announced job cuts in the past month include Kraken, Coinbase and Huobi.
Despite the dire news flow, macroeconomic tailwinds favoring risk assets ensured that only UNUS SED (LEO) closed the first 13 days of 2023 in the red.
Lido DAO (LDO) gained 108% as investors anticipated the upcoming Ethereum Shanghai upgrade that will allow the withdrawal of staked Ether to boost demand for the liquid staking protocol.
Aptos (APT) rallied 98% after several decentralized applications began to pick up 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 its competitor Arbiturm, exceeded Ethereum main chain transactions.
Demand for leverage is balanced between bulls and bears
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 7-day funding level is close to zero for Bitcoin and altcoins, which means that the data shows a balanced demand between leveraged longs (buyers) and shorts (sellers).
If bears pay 0.3% per week to maintain leveraged bets on Solana (SOL) and BNB, that adds up to 1.2% per month – which is not ideal for most traders.
related: Bitcoin price rallies to $19K, but analysts say $17.3K retest could happen next
Trader demand for neutral-to-bullish options has increased
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.
The put-to-call ratio of 0.70 shows that the put options open more lag interest up by 30%, which is bullish. In contrast, the 1.40 indicator favors the option with 40%, which can be considered bearish.
Between January 4 and January 6, protective put options dominated the space as an indicator sored above 1. The movement eventually faded and the opposite situation emerged as demand for neutral-to-bullish call options has been in excess since Jan. 7.
The lack of impact shorts and protective demand put a stop to the bull trend
Considering the 15.7% gain since the start of 2023, the derivative metrics reflect zero signs of demand from leveraged shorts or protective options. While bulls can celebrate that the $900 billion total market capitalization is facing little resistance, derivative metrics show bears are still patiently waiting for an entry point for shorts.
Considering the bearish news flow of the market, the bulls’ main hope remains only in the framework of a favorable macroeconomic environment, which is highly dependent on the retail sales data report next week.
China is also expected to release its economic figures on January 16 and the US will do the same on January 18. Another potential impact on prices could be the UK CPI print which will be announced on January 18.
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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.