Cryptocurrency markets have been relatively stable in the past month, with the total market capitalization increasing 4%. However, this month has seen a shift in volatility due to regulatory pressure.
The technical pattern that has been driving the total crypto market capitalization upwards for the past 48 hours has been disrupted. Unfortunately, trends don’t last forever and the 6.3% decrease in value is proof of this. This was enough to break the ascending channel support levels.
As displayed in the chart, the ascending channel was created in the middle of February. Then, the market cap floor at $1.025 billion was breached at the end of February when Silvergate Bank, a key player in crypto on and off-ramping, saw its stock plummet by 57.7% on the New York Stock Exchange. This resulted in Silvergate announcing additional losses. Suboptimal capitalization could potentially trigger a bank run, which could spiral out of control.
Silvergate provides financial infrastructure services to some of the world’s largest cryptocurrency exchanges, institutional investors and mining companies. Consequently, clients were advised to either find alternative solutions or to sell their positions in order to reduce their exposure to the crypto sector.
FTX, a bankrupt cryptocurrency exchange, has recently revealed a massive shortfall. Contrary to previous predictions that $5 billion could be recouped in cash and liquid crypto, the digital asset and fiat currencies of the company are now worth less than half of that. On Feb. 28, former FTX engineering director Nishad Singh pleaded guilty to wire fraud charges and conspiracy in wire and commodities theft.
The customer funds worth billions from the exchange and its subsidiary, FTX US, are still missing. The US-based arm has less than $700 million in liquid assets. In FTX US had a $116 million deficit, and FTX US had an $8.6 Billion deficit across all accounts and wallets.
Since February, the total market capitalization has seen a 4% decrease weekly. The 4.5% loss at 24 drove Bitcoin (BTC). Ether’s (ETH) 4.8% price reduction. As expected, only six of the top 80 cryptocurrency performed well in the last seven days.
EOS gained 9% following the EOS Network Foundation’s announcement of the final testnet Ethereum Virtual Machine Launch on March 27. Immutable X (IMX) also appreciated 5% after the project became a Unity Verified Solution, making it the first decentralized exchange to achieve this feat.
The total crypto market capitalization was recently hit as Silvergate Bank experienced some turmoil. On March 14, DYdX (DYDX) saw a 14.5% dip ahead of the planned $17 million token unlock.
Nevertheless, demand for leverage remains balanced despite the price corrections. Perpetual contracts, which are also known as inverse swaps, are charged a specific rate every 8 hours. This fee helps to avoid imbalances in exchange risk.
A positive funding rate suggests that buyers (longs) are trying to secure additional leverage. Conversely, if short sellers (sellers) need more leverage, the funding rate will turn negative. According to Coinglass, the seven-day funding rate was barely positive for Bitcoin and Ethereum on March 3. This reflects an even demand for leverage between buyers (sellers) and sellers (buyers) that use perpetual futures contracts. The only exception was BNB which had a slightly higher demand for betting against its price, though it was far from alarming at 0.2% per week.
The put/call ratio is a useful tool to measure the market sentiment. Generally, put options are used for bearish strategies, while call options are used for bullish strategies. A 0.70 put/call ratio is bullish since put options open interest trails the more bullish calls. On the other hand, a reading of 1.40 suggests options other than put, which is bearish.
Data from Laevitas.ch shows that since February 25, the demand for bullish call options has outpaced the neutral-to-bearish puts. The current 0.71 put-to-call volume ratio indicates that the Bitcoin options market is more populated with neutral-to-bullish strategies favoring call (buy) options.
Overall, the derivatives market indicates that the market is resilient and that traders should not expect further corrections. The 4% weekly decrease in total market capitalization is mainly attributed to the Silvergate Bank situation and is not likely to cause a systemic risk.
