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Total crypto market cap drops to $850B as data suggests further downside

The total cryptocurrency market cap fell 24% between November 8 and November 10, hitting a low of $770 billion. However, after the initial panic had subsided and forced future contract liquidations no longer pressured asset prices, a sharp recovery of 16% followed.

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Total crypto market cap in USD, 2 days. Source: TradingView

This week’s decline was not the market’s first rodeo below the $850 billion market cap level, and a similar pattern emerged in June and July. In both cases, the support proved strong, but the $770 billion intraday bottom on November 9 was the lowest since December 2020.

The weekly drop of 17.6% in total market capitalization was mostly influenced by Bitcoin (BTC)’s 18.3% loss and Ether’s (ETH) 22.6% negative price movement. However, the price impact was worse on altcoins, with 8 of the top 80 coins losing 30% or more in the period.

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Weekly winners and losers among the top 80 coins. Source: Nomics

FTX Token (FTT) and Solana (SOL) were badly affected by liquidations following the insolvency of FTX Exchange and Alameda Research.

Aptos (APT) fell 33% though deny rumours that Aptos Labs or Aptos Foundation treasuries were held by FTX.

Demand for Stablecoin remained neutral in Asia

The USD Coin (USDC) premium is a good measure of China-based crypto retail demand. It measures the difference between China-based peer transactions and the US dollar.

Excessive buying demand tends to push the indicator above fair value at 100% and during bearish markets the stablecoin’s market supply is flooded, causing a discount of 4% or higher.

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USDC Peer-to-Peer vs. USD/CNY. Source: OKX

Currently, the USDC premium stands at 100.8%, flat from the previous week. Therefore, despite the 24% drop in the total market capitalization of cryptocurrencies, no panic selling came from Asian retail investors.

However, this data should not be considered bullish as the USDC buying pressure indicates that traders are seeking shelter in stablecoins.

Few leveraged traders use futures markets

Perpetual contracts, also known as inverse swaps, have an embedded rate that is usually charged every eight hours. Exchanges use this fee to avoid exchange rate risk imbalances.

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.

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Perpetual futures 7-day funding rate on November 11. Source: Coinglass

As depicted above, the 7-day funding rate is slightly negative for the two largest cryptocurrencies and the data indicates excessive demand for shorts (sellers). Although there is a weekly charge of 0.40% to hold open positions, this is not a concern.

Traders should also analyze the options markets to understand whether whales and arbitrage banks placed higher bets on bullish or bearish strategies.

Related: Solana TVL drops by nearly one-third as FTX turmoil roils ecosystem: Finances redefined

The options put/call ratio indicates deteriorating sentiment

Traders can measure the overall sentiment of the market by measuring whether more activity is going through call (buy) options or put (sell) options. Generally, 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 options’ open interest lags by 30% after the more bullish calls and is therefore bullish. In contrast, a 1.20 indicator favors put options by 20%, which can be considered bearish.

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BTC options put-to-call ratio. Source: Cryptorank.io

As Bitcoin price broke below $18,500 on November 8, investors rushed to seek downside protection. Consequently, the put-to-call ratio subsequently increased to 0.65. Still, the Bitcoin options market remains heavily populated by neutral-to-bear strategies, as the current 0.63 level indicates.

Combining the absence of stablecoin demand in Asia and negatively skewed perpetual contract premiums, it becomes clear that traders are not comfortable that the $850 billion market cap support will hold in the near term.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.

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