Crypto market in bearish phase as funding rates fall
The US regulators have been cracking down on the crypto space for a while. As a result, it is becoming more difficult for companies to access USD to purchase digital assets.
The total number of payment providers is shrinking in the US, and stablecoins, which have been the foundation of crypto, have also seen their dominance decline since the collapse of crypto exchange FTX.
Considering the trading volume of the world’s largest cryptocurrency, the dollar-denominated BTC has continued to fall. On the other hand, Euro and Tether-denominated Bitcoin pairs have become larger since November 2022. In its report on Monday, March 6th, blockchain research firm Kaiko reported
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The Euro certainly presents an opportunity, but when we look at the market share of volume for USD-denominated pairs, we see a broader story emerging: the story of the declining use of the dollar in crypto. Since the FTX collapse, the USD market share has fallen consistently against the USDT, USDC and Euro trading pairs.
Clara Medalie, director of research at Kaiko, said the decline in the USD following FTX’s collapse could largely be linked to a drop in institutional trading activity. She added that institutional trading desks typically prefer to settle their trades in dollars rather than stablecoins.
Stablecoins on the rise in the crypto market
In the past, traditional banking platforms have played a key role as a reliable on-and-off ramp between crypto-platforms and hard currencies. But amid the FTX collapse, US banks have cut ties with crypto firms.
Amid the recent decline of crypto-focused bank Silvergate Capital, stablecoins are once again gaining traction among traders. In its report, Kaiko stated that the number of fiat trading pairs listed by exchanges has fallen since the rise of stablecoins. Last year in 2022, the total number of dollar-denominated trading pairs across all crypto exchanges fell to 326 from 400 a year ago. On the other hand, the euro trading pairs jumped from 96 to 125.
Bearish sentiment for the crypto market
Following last week’s correction, the broader crypto market has entered consolidation. But on-chain data from CryptoQuant shows that funding rates have been on the decline and overall sentiment has largely remained bearish. CryptoQuant contributor caueconomy writes:
The funding rate of perpetual futures normally signals the current market bias, at which point traders build short positions. If we have more leverage and bearish bets in this setup, we could have a price recovery driven by widespread short liquidations.
