Total crypto market capitalization takes another hit, but traders remain neutral

The total cryptocurrency market capitalization fell 8.1% in the past two days after it failed to break the $880 billion resistance on December 14.

The rejection did not invalidate the 4-week ascending channel, but a weekly close below $825 billion would confirm a shift to the lower band and reduce the support level to $790 billion.

The general investor sentiment towards the market remains bearish, and losses so far this year amount to 66%. Despite this, the price of Bitcoin (BTC) fell just 2% on the week, down to the $16,800 level at 17:00 UTC on December 16.

A completely different scenario emerged for altcoins that are being pressured by pending regulation and fears that major exchanges and miners may be insolvent. This explains why the total market capitalization had fallen by 4.7% since December 9.

According to court documents filed Dec. 15, a U.S. trustee announced the committee was responsible for part of FTX’s bankruptcy proceedings. Among these are Wintermute Asia, a leading market player and GGC International, a subsidiary of troubled lending platform Genesis. Investors remain in the dark about who the biggest creditors from the failed FTX exchange group are, fueling speculation that contagion could continue to spread.

On December 15, the central bank of the Netherlands issued a warning to investors using KuCoin, saying the exchange was operating without legal registration. De Nederlandsche Bank added that the crypto firm “illegally offered services” and “illegally offered custodial wallets” for users.

Adding to the drama, on December 16, Mazars Group, a company known for its proof-of-reserve audit services for crypto companies, reportedly removed recent documents detailing exchange audits from its website. The firm was previously appointed as the official auditor for Binance’s proof-of-reserve updates, a move followed by Kucoin and Crypto.com.

The Bitcoin mining sector has also suffered due to the sharp correction in cryptocurrency prices and rising energy costs. Publicly traded miner Core Scientific was offered a conditional emergency credit line of $72 million to avoid bankruptcy. The financial lender is demanding the suspension of all payments to Core Scientific’s equipment borrowers while Bitcoin remains below $18,500.

The weekly drop of 4.7% in total market capitalization was mainly influenced by Ether’s (ETH) negative price movement of 5.4% and BNB, which traded down 15.1%. Consequently, the bearish sentiment significantly affected altcoins, with 14 of the top 80 coins falling 12% or more during the period.

Open Network (TON) gained 30% after Telegram launched bidding on anonymous phone numbers sold for TON tokens.

Bitcoin SV (BSV) surged 11.7% after Craig Wright, the self-proclaimed Satoshi Nakamoto and leader of the altcoin project, appealed his loss in Norwegian courts.

Trust Wallet (TWT) saw a 27.2% correction after its parent company (Binance) faced $1.9 billion in withdrawals in 24 hours.

Leverage demand is balanced between bulls and bears

Currently, data shows that demand for leverage is split 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) during the period.

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

The options put/call volume reflects a neutral market

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%, and this is bullish. In contrast, a 1.40 indicator favors put options by 40%, which can be considered bearish.

Although Bitcoin’s price failed to break the $18,000 resistance on December 14, there was no excessive demand for downside protection using options. More precisely, the indicator has been below 1.00, so a bit optimistic, since 12 December.

Currently, the put-to-call volume ratio is close to 0.88 because the options market is more heavily populated by neutral-to-bullish strategies that favor call (call) options by 12%.

The derivatives markets are neutral, but the news flow is negative

Despite the significant weekly price decline of a handful of altcoins and the 4.7% drop in total market capitalization, derivatives calculations reflect no signs of panic.

There has been a balanced demand for longs and shorts using futures contracts. As a result, the BTC option’s risk rating remains favorable even after Bitcoin’s 8.5% correction following the December 14 $18,370 high.

Ultimately, bulls should not expect the $825 billion market cap to hold, which does not necessarily mean an immediate retest of the $790 billion support.

At the moment, the lower band of the ascending channel continues to exert upward pressure, but the news flow looks favorable for bears.