Total crypto market cap approaches $1T just as Bitcoin price moves towards $20K

The total cryptocurrency market capitalization reached its highest level in over two months on January 13th after breaking above the $900 billion mark on January 12th.

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 April 2022 collapse of the Terra-Luna ecosystem.

“Hopeful skepticism” is probably the best description of most investors’ sentiment at the moment, especially after recent struggles to recapture a $1 trillion market cap in early November. This rally to $1 trillion was followed by a 27.6% correction in three days, nullifying any bullish momentum that traders might have expected.

Bitcoin (BTC) has gained 15.7% so far this year, but a different scenario has emerged for altcoins, with a handful of them gaining 50% or more in the same period. Some investors attribute the rally to US consumer price index (CPI) data released on January 12, which confirmed the thesis that inflation continued to fall.

While macroeconomic conditions may have improved, the situation for cryptocurrency companies seems bleak. New York-based Metropolitan Commercial Bank (MCB) announced on January 9 that it would close its crypto asset vertical, citing changes in the regulatory landscape and recent setbacks in the industry. Crypto-related customers accounted for 6% of the bank’s total deposits.

On January 12, the US Securities and Exchange Commission (SEC) charged cryptocurrency lending firm Genesis Global Capital and crypto exchange Gemini for offering unregistered securities through Gemini’s Earn program.

A final blow came on January 13th after Crypto.com announced a new wave of layoffs on January 13th, reducing its global workforce by 20%. Other crypto exchanges that recently announced job cuts in the past month include Kraken, Coinbase and Huobi.

Despite the dire news flow, the macroeconomic tailwind favoring risk assets ensured that only the UNUS SED (LEO) closed the first 13 days of 2023 in the red.

Lido DAO (LDO) surged 108% as investors anticipate the upcoming Ethereum Shanghai upgrade that will enable withdrawal of Ether stakes to boost demand for floating stake protocols.

Aptos (APT) surged 98% after some decentralized applications started to increase volume, including Liquidswap decentralized exchange (DEX), Ditto Finance staking and returns, and non-fungible token (NFT) marketplace Topaz Market.

Optimism (OP) increased by 70% after the layer-2 network picked up activity and, combined with competitor Arbiturm, surpassed Ethereum’s main chain transactions.

Leverage demand is balanced between bulls and bears

Perpetual contracts, also known as inverse swaps, have a built-in rate that is usually charged every eight hours. Exchanges use this fee to avoid imbalances in currency risk.

A positive funding rate indicates that longs (buyers) require more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to become negative.

The 7-day funding rate was close to zero for Bitcoin and altcoins, meaning the data points to a balanced demand between leverage longs (buyers) and shorts (sellers).

If bears are paying 0.3% per week to maintain their leveraged bets on Solana (SOL) and BNB (BNB), that’s only 1.2% per month – which is irrelevant to most traders.

Related: Bitcoin price rises to $19K, but analyst says a $17.3K retest could happen next

Traders’ demand for neutral-to-bullish options has increased

Traders can gauge the overall sentiment of the market by gauging whether more activity is going through call (buy) options or put (sell) 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 options’ open interest lags the more bullish calls by 30%, which is bullish. In contrast, a 1.40 indicator favors put options by 40%, which can be considered bearish.

Between January 4th and January 6th, the protective put options dominated the area as the indicator rose above 1. The move 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 leverage shorts and the demand for protection points against a bull trend

Given the 15.7% gain since the start of 2023, derivatives calculations reflect zero signs of demand from leveraged shorts or protective puts. While bulls can celebrate that resistance to a total market cap of $900 billion met little resistance, derivatives calculations show that bears are still patiently waiting for an entry point for their shorts.

Considering the market’s bearish news flow, the bull’s main hope remains solely within the framework of a favorable macroeconomic environment, which largely depends on how retail sales data reports next week.

China is also expected to release its economic figures on January 16 and the United States will do the same on January 18. Another potential price impact could be the UK CPI print which is set to be announced on 18 January.

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