Derivatives data highlights crypto traders’ positive sentiment and belief in further upside
The recent weakness in the crypto market has not invalidated the six-week uptrend, even after a failed test of the channel’s upper band on February 21. The total crypto market capitalization remains above the psychological $1 trillion, and more importantly, cautiously optimistic after another round of negative comments from regulators.
As shown above, the ascending channel initiated in mid-January has room for another 3.5% correction down to $1.025 trillion, while still maintaining the bullish formation.
That’s good news considering the FUD – fear, uncertainty and doubt – that was clamped down by regulators regarding the cryptocurrency industry.
Recent examples of bad news include a US District Court judge ruling that emojis like the rocket ship, stock chart and money bags suggest “a financial return on investment,” according to a recent lawsuit. On February 22, a federal court judge in a case against Dapper Labs denied a motion to dismiss the complaint alleging that its NBA Top Shot Moments violated security laws by using such emojis to denote profit.
Outside the US, the International Monetary Fund (IMF) issued guidance on February 23 on how countries should treat crypto assets, strongly advising against granting Bitcoin legal tender status. The paper stated, “while the supposed potential benefits from cryptoassets have yet to materialize, significant risks have emerged.”
IMF directors added that “the widespread use of crypto-assets could undermine the effectiveness of monetary policy, circumvent capital flow management measures and exacerbate fiscal risks.” In short, these guidelines created additional FUD that caused investors to reevaluate their exposure to the cryptocurrency sector.
The 5.5% weekly decline in total market capitalization since February 20 was driven by a 6.3% loss from Bitcoin (BTC) and Ether’s (ETH) 4.6% price decline. Consequently, the correction in altcoins was even more robust, with 9 of the top 80 cryptocurrencies down 15% or more in 7 days.
Stacks (STX) gained 53% after the project announced its v2.1 update to strengthen the connection to Bitcoin native assets and improve smart contract control.
Optimism (OP) surged 13% as the protocol released details of its upcoming superchain network, which focuses on cross-blockchain interoperability.
Curve (CRV) traded down 21% after an Ethereum security research firm suggested verkle trees implementation, which could seriously affect Curve Finance’s use on the mainnet, according to his team.
Leverage demand is balanced despite the price correction
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 marginally positive for Bitcoin and Ethereum, thus a balanced demand between leverage longs (buyers) and shorts (sellers). The only exception was the slightly higher demand for games against BNB price, although it is not significant.
The put/call ratio options remain bullish
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 open interest lags the more bullish calls and is therefore positive. Conversely, a 1.40 indicator favors put options, which can be considered bearish.
Related: ‘Liquidity’ has most affected Bitcoin’s price over the past year, according to trader Brian Krogsgard
Except for a brief moment on February 25th when Bitcoin’s price traded down to $22,750, demand for bullish calls has exceeded neutral-to-bearish sales since February 14th.
The current 0.65 put-to-call volume ratio shows that the Bitcoin options market is more heavily populated by neutral-to-bullish strategies, favoring call (buy) options by 58%.
From a derivatives market perspective, bulls are less likely to fear the latest 5.5% decline in total market capitalization. There is little that federal judges or the IMF can do to undermine investors’ faith that they can benefit from decentralized protocols and cryptocurrencies’ ability to resist censorship. Ultimately, derivatives markets have shown resilience, paving the way for further upside.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
