The overall cryptocurrency market cap has taken another hit, but traders remain neutral

The total cryptocurrency market cap fell by 8.1% in the past two days after failing to break the $880 billion resistance on December 14.

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

Investors’ overall sentiment towards the market remains bearish, with year-to-date losses of 66%. Despite this, Bitcoin (BTC) price fell by only 2% over the course of the week, reaching the $16,800 level at 17:00 UTC on December 16.

A very different scenario has emerged of cryptocurrencies under pressure due to pending regulations and fears that major exchanges and miners are insolvent. This explains why the total market capitalization has decreased by 4.7% since December 9th.

According to court documents filed on December 15, one of the US trustees declared the committee responsible for part of FTX’s bankruptcy proceedings. These include Wintermute Asia, a leading market maker, and GGC International, an affiliate of distressed lending platform Genesis. Investors remain in the dark as to who are the biggest creditors from the failed FTX exchange group and this fuels speculation that the contagion could continue to spread.

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

Adding to the drama, on December 16, Mazars Group, a company known for proof-of-stake audit services for crypto firms, removed recent documents detailing exchange audits from its website. The company was previously appointed as the official validator for Binance’s Proof of Reserve updates, a move followed by KuCoin and Crypto.com.

The bitcoin mining sector has also suffered due to a strong correction in cryptocurrency prices and rising energy costs. Listed mining company Core Scientific has been offered a $72 million emergency line of credit to avoid bankruptcy. The financial lender is requesting that all payments to equipment lenders at Core Scientific be suspended while Bitcoin remains below $18,500.

The weekly decline of 4.7% in the total market cap was mainly affected by the negative price movement of Ether (ETH) by 5.4% and BNB (BNB), which fell by 15.1%. As a result, bearish sentiment has weighed heavily on altcoins, with 14 of the top 80 altcoins dropping 12% or more in the period.

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

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

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

The demand for leverage is balanced between bulls and bears

Currently, the data shows that the demand for leverage is divided between bulls and bears.

Perpetual contracts, also known as reverse swaps, have a built-in rate that is usually charged every eight hours. Exchanges use these fees to avoid imbalances in exchange risk.

A positive funding ratio indicates that long contracts (buyers) require more leverage. However, the opposite situation occurs when short positions (sellers) require additional leverage, causing the financing rate to turn negative.

The 7-day funding rate was close to zero for Bitcoin and altcoins, which means that the data indicates that there is a balanced demand between longs (buyers) and shorts (sellers) in this period.

Traders should also analyze the options markets to understand whether whale and arbitrage desks are placing higher bets on bullish or bearish strategies.

The volume of put/call options reflects a neutral market

Traders can gauge overall market sentiment by gauging whether more activity is going through with buying (going long) or selling (selling) options. In general, call options are used for bullish strategies, while call options are used for bearish strategies.

A ratio of 0.70 to long indicates that the open interest of put options lags as bullish calls increase by 30% and this is bullish. In contrast, the indicator 1.40 favors put options by 40%, which can be considered bearish.

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

At the moment, the buy-to-buy volume ratio stands near 0.88 because the options market is more aggressively filled with neutral-to-bullish strategies favoring put (call) options at 12%.

Derivatives markets are neutral, but the news flow is negative

Despite a significant weekly price drop in a handful of altcoins and a 4.7% drop in total market capitalization, derivatives metrics show no signs of panic.

There was a balanced demand for buy and sell positions using futures contracts. As a result, the metric for assessing the risk of BTC options remains relevant even after Bitcoin corrected 8.5% after the $18,370 high on December 14.

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

Currently, the lower band of the ascending channel continues to exert upward pressure, but the news flow seems favorable to the bears.