The cryptocurrency market has been trading in an unusually tight 5% range since March 17 as conflicting forces continue to weigh on the industry. As a result, the total market capitalization has only increased by 3.8% in the past 7 days, mainly due to the price increase of Bitcoin 3.6% and ETH 5%.
12-hour total cryptocurrency market capitalization (USD) | Source: TradingView
On March 27, the U.S. Commodity Futures Trading Commission (CFTC) sued Binance and Changpeng “CZ” Zhao, alleging violations of trading rules and derivatives, adding to the uncertainty of the rules. According to the lawsuit, Binance offers leverage to customers trading in spot and futures markets.
The announcement comes just five days after Coinbase received Wells’ notice from the U.S. Securities and Exchange Commission (SEC), potentially targeting the exchange’s staking program, listing digital assets, listing on Coinbase Prime, wallets and services.
Similar actions are taking place outside the U.S., with Japan’s Financial Services Agency (FSA) announcing on March 31 that several foreign cryptocurrency exchanges, including Binance, Bybit, MEXC Global, and Bitget, were operating in the country without proper registration , in violation of local regulations and laws.
The aforementioned trend that started in mid-March has repeatedly tested the support of the $1.14 trillion market capitalization. The move shows that investors are reluctant to place new bets until more information is available on the lawsuits against Binance and Coinbase.
Risk markets benefit from inflationary pressures
The global banking crisis has forced the US Federal Reserve (Fed) to use two different emergency lending programs. In addition, the Swiss National Bank provided over $100 billion in liquidity to neutralize Credit Suisse before selling the institution to UBS.
Stocks and commodities benefited as traditional financial investors looked for alternatives to avoid inflation. Since March 15, the S&P 500 is up 6.6%, gold is up 4.6% and oil is up 18.6%. Thus, there are compelling arguments for both the upside and the downside of the channel, which currently caps the total cryptocurrency market capitalization at $1.2 trillion.
Derivatives are trending in the mix, but don’t overleverage
Perpetual contracts are also known as inverse swaps, and their rates are usually calculated every 8 hours. Exchanges use this fee to avoid the risk of exchange rate imbalances.
A positive funding rate indicates that more leverage is required to go long (buyers) and vice versa.
Accumulated Funding Rate of Perpetual Contract 4 March 7 days | Source: Coinglass
The 7-day funding rates for Bitcoin and ETH are neutral, indicating a balance in demand between leveraged longs (buyers) and shorts (sellers) using perpetual futures.
Traders can gauge market sentiment with calls or puts to gauge whether there is more activity. Generally speaking, calls are used for bullish strategies, while puts are used for bearish strategies.
A Call Ratio of 0.7 indicates that put open interest (OI) is slower than call open interest (OI), thus indicating an increase in price. Conversely, the 1.4 indicator favors put options, which can be considered bearish.
Call Ratio on BTC Options Volume | Source: Laevitas
The call-to-call ratio on Bitcoin options volume rose to its highest level since March 9, indicating strong demand for neutral to bearish put options. This is the opposite of what happened on April 1, when demand for call options increased.
There’s little chance of traders’ valuation exceeding $1.2 trillion
Market pricing derivatives markets have a higher probability of downside. However, with futures markets needing to balance, traders are reluctant to increase their bets until regulators act.
From a derivatives market perspective, traders are pricing in higher downside. However, given the need for balance in the futures market, investors are reluctant to place further bets until there is a clearer picture of the regulator’s actions.
It is unclear whether the total market capitalization will break through the $1.2 trillion mark, but professional traders are not currently betting on that outcome.
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As reported by Cointelegraph