Bullish Crypto Traders Remain Dominant Despite Market Cap Denied at $1 Trillion

While Bitcoin (BTC) price stabilized near $21,000 on Jan. 19, the cryptocurrency market capitalization surged 29.4% in two weeks.

As a result, it is becoming increasingly difficult to justify a five-month bear trend still prevailing after the top of the $930 billion crypto channel has been breached. Yet psychological $1 trillion resistance remains strong.

The move comes after investors were skeptical of risk assets after weaker-than-expected inflation data indicated that the Federal Reserve’s rate hike strategy should ease through 2023. It may reflect that you are becoming more optimistic.

But Dutch Central Bank Governor Klaas Nott said on January 19 that the European Central Bank (ECB) “certainly won’t stop with one 50 basis point rate hike.”

Speaking at the Davos Forum, Knott added:

Essentially, investors fear that further rate hikes could further squeeze corporate earnings, triggering job losses and a deep recession. In this case, a sell-off in the stock market would be the baseline scenario and the cryptocurrency market could follow a bearish trend.

Further proving the strong correlation between cryptocurrencies and the stock market, the Russell 2000 Index faced a 3.4% drop between January 18th and January 19th. The move coincides with a 4% correction in crypto market cap after flirting with $1 trillion. January 18 mark.

The 10.4% rise in market cap between Jan. 12 and Jan. 19 was largely driven by Bitcoin’s 10.4% gain and Ether (ETH), which rose 8.7%. Bullish sentiment has been more eventful for altcoins, with eight of the top 80 coins up more than 20% over the period.

Metaverse-related tokens surged after tech giant Apple announced the upcoming release of its VR headset. Among the top movers, Decentraland (MANA) increased by 55%, Enjin (ENJ) by 37%, and The Sandbox (SAND) by 30%.

Frax Share (FXS) is up 40% to reach 65,000 Ether deposited into the Liquid Staking Protocol, which is currently locked in over US$100 million worth.

Privacy coins such as Monero (XMR) and Zcash (ZEC) plunged amid growing regulatory risks, and the US Department of Justice announced the arrest of the founder of peer-to-peer crypto exchange Bitzrat.

Growing demand for leveraged bullish betting

Perpetual contracts, also known as inverse swaps, have built-in rates that are typically billed every 8 hours. Exchanges use this fee to avoid currency risk imbalances.

A positive funding rate indicates that longs (buyers) are demanding more leverage. However, the opposite situation occurs when the short (seller) requires additional leverage, resulting in a negative funding rate.

The 7-day funding rate is positive in all instances and the data shows high demand for leveraged longs (buyers) during the period. Being charged is not a major concern for most investors.

Therefore, traders should analyze the options market to understand whether whales and arbitrage desks have placed high bets on bullish or bearish strategies.

BTC Options Says Investors Are Not Afraid of Fall

Traders can gauge overall market sentiment by measuring whether more activity is taking place via call (buy) or put (sell) options. Generally speaking, call options are used for bullish strategies and put options are used for bearish strategies.

A put-to-call ratio of 0.70 indicates that the put option open interest lags the more bullish call by 30% and is therefore bullish. In contrast, if the indicator is 1.40, the put option is 40% better and can be considered bearish.

Despite Bitcoin’s failure to break the $21,500 resistance on Jan 18, there was no sign of increased demand for downside protection. It is evident from the fact that even after , the put-to-call volume remains below 0.80.

A neutral-to-bearish strategy continues to be strongly sought in the BTC options market, with 23% favoring call (buy) options.

RELATED: Compass Mining sued for missing Bitcoin mining machine purchased by customer.

Derivatives Market Suggests Strong Support at $930bn Level

After a strong rally over the past seven days, the cryptocurrency market continues to show resilience despite warnings of a “global financial meltdown” by BitMEX founder Arthur Hayes. “2023 could be as bad as 2022 until the Fed pivots,” Hayes wrote, calling that scenario his “base case.”

There is little fear or lack of demand to buy leverage after missing the first $1 trillion market cap opportunity, according to crypto derivatives indicators. These are encouraging signs, especially when combined with the technical analysis of a descending channel breakout.

As a result, the odds are in favor of the previous channel top of $930 billion, a strong support level. Therefore, even a traditional market pullback is not a major concern for cryptocurrency bulls for now, but investors should continue to monitor derivatives indicators.