Bullish trend persists in crypto despite market capitalization drop

Despite reports that the total cryptocurrency market capitalization has fallen below $800 billion, recent data show a slightly bullish trend among traders.

Analysts explained that there was a relatively balanced leverage demand between bears and bulls in the crypto market. Data revealed that Bitcoin had a slightly negative seven-day funding rate, indicating higher order for shorts.

Bitcoin weighted the crypto market’s weekly growth by 0.20 percent, but analysts said it was offset by mixed rates or balanced demand in remaining altcoins, except for SOLANA.

Crypto exchanges usually charge an embedded rate in inverse swaps or perpetual contracts to avoid risk imbalances. A positive funding rate indicates a higher price of perpetual contracts against the marked price. It happens when buyers (longs) request more leverage.

Meanwhile, a negative funding rate reveals a higher marked price than the perpetual contract price. It occurs when sellers (shorts) demand additional leverage.

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Analysts also proposed the importance of options markets in understanding whether crypto whales prefer bullish or bearish market strategies. Call (buy) options generally indicate bullish strategies, while put (sell) options are used for bearish strategies.

Bitcoin’s price broke its lower support of $16,000 per unit on November 20. However, data revealed that investors did not quickly use options for downside protection. It led to a steady put-to-call ratio which remained around 0.54.

The Bitcoin options market, according to analysts, also indicated that players favored neutral-to-bearish strategies. They also pointed out that derivatives data had shown investors’ resilience in the market. There was no excessive demand for bearish bets based on the futures funding rate. Open interest also indicated generally neutral-to-bullish options.

The weekly data showed a five percent drop in crypto total market capitalization. Last week, the Bitcoin price fell by 2.8 percent, hovering around the $16,100 level. The year-to-year chart showed a 66 percent decline in Bitcoin price.

Ether, the second largest token after Bitcoin, contributed the most to last week’s loss as its price dropped by 8.5 percent. Bearish sentiment also affected altcoins since the top nine coins lost 12 percent or more of their values last week.

Some of the drops in altcoins were tied to troubled crypto companies. Near Protocol’s NEAR lost 23 percent over concerns about its 17 million tokens held by the now-defunct FTX and Alameda Research. Decentraland’s MANA and Ethereum Classic lost 15 percent and 13.5 percent, respectively, due to investments from the troubled Digital Currency Group.

FTX's contagion effect

FTX Group’s bankruptcy has caused a contagion effect in the crypto industry. Several crypto companies had their assets tangled with the defunct crypto exchange, and other companies that did not have a direct link to FTX were also affected by its downfall due to poor investors’ sentiments.

Investors have begun questioning the financial health of other crypto exchanges, causing widespread sell-offs. Some companies temporarily froze trading activities, while others braced for Chapter 11 filings.

Analysts said daily trading volumes were around 30 to 40 percent below the yearly average in the past weeks. Coinbase CEO Brian Armstrong discussed the crypto market situation following FTX’s downfall, relaying his sympathy for customers who lost money in the bankrupt crypto exchange.

Armstrong also asserted that his company did not have “any material exposure to FTX.” This year, Coinbase’s shares have gone down by more than 83 percent.