Between November 8 and November 10, the total cryptocurrency market capitalization fell by 24%, reaching a low of $770 billion. However, once the initial panic subsided and forced future contract liquidations were no longer putting pressure on asset prices, a 16% recovery ensued.
This week’s drop was not the market’s first foray below the $850 billion mark; a similar pattern emerged in June and July. Although support was strong in both cases, the $770 billion intraday bottom on November 9 was the lowest since December 2020.
The 17.6% weekly drop in total market capitalization was primarily due to Bitcoin’s 18.3% loss and Ether’s 22.6% price drop.
Nonetheless, the price impact on altcoins was more severe, with 8 of the top 80 coins losing 30% or more during the period.
Liquidations following the insolvency of FTX exchange and Alameda Research had a significant impact on FTX Token and Solana.
Despite denying rumours that Aptos Labs or Aptos Foundation treasuries were held by FTX, Aptos (APT) fell 33%.
The USD Coin premium is a good indicator of crypto retail trader demand in China. It calculates the difference between peer-to-peer trades in China and the US dollar.
Excessive buying demand tends to push the indicator above fair value at 100%, while bearish markets flood the stablecoin’s market offer, resulting in a 4% or higher discount.
The USDC premium is currently at 100.8%, unchanged from the previous week. As a result, despite a 24% drop in total cryptocurrency market capitalization, Asian retail investors did not panic sell.
However, this data should not be interpreted as bullish, as the USDC buying pressure indicates that traders are seeking refuge in stablecoins.
Futures markets are used by a small number of leverage buyers.
Perpetual contracts, also known as inverse swaps, typically charge an embedded rate every eight hours. This fee is used by exchanges to avoid exchange risk imbalances.
A positive funding rate indicates that longs (buyers) are looking for more leverage. The opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to fall.
The 7-day funding rate for the two largest cryptocurrencies is slightly negative, indicating an excess demand for shorts (sellers). Even though there is a 0.40% weekly cost to keep open positions, it is not a cause for concern.
Traders should also look at the options markets to see if whales and arbitrage desks have increased their bets on bullish or bearish strategies.
The put/call option ratio indicates deteriorating sentiment
Traders can gauge market sentiment by determining whether more activity is occurring through call (buy) options or put (sell) options. Call options are typically used for bullish strategies, whereas put options are used for bearish ones.
A put-to-call ratio of 0.70 indicates that put options open interest lags behind more bullish calls by 30% and are thus bullish. A 1.20 indicator, on the other hand, favours put options by 20%, which can be interpreted as bearish.
When the price of Bitcoin fell below $18,500 on November 8, investors rushed to seek downside protection. As a result, the put-to-call ratio has risen to 0.65. Nonetheless, the Bitcoin options market remains dominated by neutral-to-bearish strategies, as evidenced by the current 0.63 level.
When the lack of stablecoin demand in Asia is combined with negatively skewed perpetual contract premiums, it is clear that traders are not confident that the $850 billion market capitalization support will hold in the near term.