Total crypto market cap falls to $850B as data suggests further downside

The total cryptocurrency market cap fell by 24% between November 8 and November 10, hitting a low of $770 billion. But after the initial panic subsided and forced liquidations of futures contracts no longer depressed asset prices, a sharp 16% rally followed.

This week’s drop was not the market’s first rodeo 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 weekly drop of 17.6% in total market capitalization was mainly influenced by Bitcoin’s (BTC) loss of 18.3% and Ether’s (ETH) negative price movement of 22.6%. Still, the price impact was more severe on altcoins, with 8 of the top 80 coins losing 30% or more in the period.

FTX Token (FTT) and Solana (SOL) were hit hard by liquidations following the insolvency of the FTX exchange and Alameda Research.

Aptos (APT) fell 33% despite denies rumours that Aptos Labs or Aptos Foundation treasuries were held by FTX.

Stablecoin demand remained neutral in Asia

The USD Coin (USDC) premium is a good measure of China-based crypto traders’ demand. It measures the difference between China-based peer-to-peer trades and the US dollar.

Excessive buying demand tends to push the indicator above fair value of 100%, and during bearish markets, the stablecoin’s market supply is flooded, causing a discount of 4% or higher.

Currently, the USDC premium is 100.8%, flat compared to last week. Therefore, despite the 24% decline in total cryptocurrency market capitalization, there was no panic selling by Asian retail investors.

However, this data should not be considered bullish as the USDC buying pressure indicates that traders are seeking shelter in stablecoins.

Few leveraged buyers use futures markets

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.

As shown above, the 7-day funding rate is slightly negative for the two largest cryptocurrencies, and the data points to an excessive demand for shorts (sellers). Although there is a weekly charge of 0.40% to maintain open positions, it is not a concern.

Traders should also analyze the options markets to understand whether whales and arbitrage tables have placed higher bets on bullish or bearish strategies.

Related: Solana TVL falls by almost a third as FTX unsettles the ecosystem: Finance redefined

The options put/call ratio points to a deteriorating sentiment

Traders can gauge the general mood 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 open interest lags the more bullish calls by 30% and is therefore bullish. In contrast, a 1.20 indicator favors put options by 20%, which can be considered bearish.

When the Bitcoin price broke below $18,500 on November 8, investors rushed to seek downside protection. As a result, the put-to-call ratio increased to 0.65. Nevertheless, the Bitcoin options market is still heavily populated by neutral-to-bearish strategies, as the current 0.63 level indicates.

Combining the absence of stablecoin demand in Asia and negatively skewed perpetual contract premiums, it becomes clear that traders are not comfortable that the support for the $850 billion market cap will last in the short term.