Total cryptocurrency market capitalization fell 24% between November 8 and 10, hitting a low of $770 billion. However, after the initial panic subsided and forced liquidations of futures contracts no longer put pressure on asset prices, a strong 16% rally followed.
This week’s drop was not the market’s first roundup below the $850 billion market cap level, and a similar pattern emerged in June and July. In both cases, support showed strength, but the intraday low of $770 billion on November 9 was the lowest since December 2020.
The 17.6% weekly drop in total market capitalization was mostly impacted by Bitcoin (BTC) 18.3% loss and Ether (ETH) 22.6% negative price movement. Still, the price impact was most severe on altcoins, with 8 of the top 80 coins losing 30% or more in the period.
FTX tab (FTT) and Solana (SUN) were severely affected by the liquidations following the insolvency of FTX Exchange and Alameda Research.
Aptos (APT) fell 33% despite denying the rumors that the treasuries of Aptos Labs or Aptos Foundation were in the hands of FTX.
Stablecoin demand remained neutral in Asia
The USD currency (USDC) premium is a good indicator of demand for China-based retail cryptocurrency merchants. Measures the difference between China-based peer-to-peer transactions and the US dollar.
Excessive buying demand tends to push the indicator above 100% fair value and during bear markets, the stablecoin market supply is flooded, causing a discount of 4% or more.
The USDC premium currently stands at 100.8%, stable from the previous week. Thus, despite the 24% drop in total cryptocurrency market capitalization, Asian retail investors did not panic sell.
However, this data should not be considered bullish as USDC buying pressure indicates that traders are seeking refuge in stablecoins.
Few leverage buyers use futures markets
Perpetual contracts, also known as reverse swaps, have a built-in fee that is typically charged every eight hours. Exchanges use this fee to avoid currency risk imbalances.
A positive funding rate indicates that long buyers require more leverage. However, the opposite situation occurs when short sellers require additional leverage, causing the funding rate to turn negative.
As shown above, the 7-day funding rate is slightly negative for the two largest cryptocurrencies and the data points to excessive demand for shorts (sellers). Although there is a weekly cost of 0.40% to hold open positions, it is not a concern.
Traders should also analyze the options markets to understand whether whales and arbitrage desks have placed higher bets on bullish or bearish strategies.
Related: Solana TVL Drops Nearly a Third as FTX Turmoil Rocks Ecosystem – Finance Redefined
Options Put/Call Ratio Points to Worsening Sentiment
Traders can gauge overall market sentiment by gauging if there is more activity through call options or put options. Generally speaking, call options are used for bullish strategies while put options are for bearish strategies.
A put-to-call ratio of 0.70 indicates that put option open interest lags the most bullish calls by 30% and is therefore bullish. Conversely, an indicator of 1.20 favors put options by 20%, which can be considered bearish.
When the price of Bitcoin fell below $18,500 on November 8, investors scrambled to seek protection against losses. As a result, the put-to-call ratio subsequently increased to 0.65. Still, the Bitcoin options market continues to be more populated by neutral to bearish strategies, as indicated by the current 0.63 level.
Combining the absence of demand for stablecoins in Asia and negatively skewed perpetual contract premiums, it becomes clear that traders are not comfortable with $850 billion market cap support holding any time soon.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.