How are traders feeling when total capital plummets due to Silvergate banking crisis?

The cryptocurrency market experienced a relatively quiet month in February, with the total market capitalization increasing by 4% during the period. Concerns about regulatory pressure, however, appeared to have sparked volatility in March.

The bulls certainly cannot extend the technical pattern that has driven total market capitalization higher over the past 48 days. Unfortunately, not all trends last forever, and the 6.3% correction on March 2 was enough to break the ascending channel support.

Total Cryptocurrency Market Cap in USD | Source: TradingView

As shown in the above chart, the ascending channel from mid-January shows that the stock of Silvergate Bank, a major player in the banking industry, fell below the bottom line of the market value of 1.025 trillion US dollars. Cryptocurrencies on and off the ramp fell 57.7% on the New York Stock Exchange on March 2. Silvergate has declared “other losses” and suboptimal capitalization that could lead to a bank run and spin the situation out of control.

Silvergate provides financial infrastructure services to some of the world’s largest cryptocurrency exchanges, institutional investors and mining companies. Therefore, clients are encouraged to find alternatives or sell positions to reduce their exposure to the cryptocurrency space.

On March 2, bankrupt exchange FTX disclosed a “massive gap” in digital assets and fiat currencies, contrary to previous estimates that could recover $5 billion in cash and cryptocurrency liquidity. On Feb. 28, former FTX technical director Nishad Singh pleaded guilty to wire fraud and conspiracy to commit merchandise and money fraud.

With billions of dollars worth of client funds “flying away” from the exchange and FTX US’s U.S. arm, less than $700 million in liquid assets remained. Overall, FTX recorded a deficit of $8.6 billion across all wallets and accounts, while FTX US recorded a deficit of $116 million.

Since February 24, the total market capitalization has dropped 4% on a weekly basis, due to a 4.5% drop in Bitcoin and a -4.8% drop in Ethereum. As expected, only six of the top 80 coins had positive performances over the past seven days.

Weekly winners and losers of the top 80 coins | Source: Messari

EOS jumped 9 percent after the EOS Network Foundation announced the launch of the final testnet for the Ethereum Virtual Machine on March 27.

Immutable X (IMX) deal value increased by 5% as the project became a “Verified Solution for Unity”, allowing seamless integration with the Unity SDK.

In contrast, DYdX (DYDX) is trading down 14.5% as investors await the unlocking of $17 million in tokens on March 14.

Balanced leverage demand despite recent price correction

Perpetual contracts are also known as inverse swaps, and their rates are usually calculated every 8 hours. Exchanges use this fee to avoid exchange risk imbalances.

A positive funding rate indicates that more leverage is required to go long (buyers) and vice versa.

Electronic money

3/3 perpetual contract accumulative 7-day funding rate | Source: Coinglass

7-day funding rates for Bitcoin and ETH are slightly positive, reflecting the need to use perpetual futures to balance leveraged longs and shorts. The only exception is that staking demand is slightly higher relative to BNB, although it is well below the worrying 0.2% weekly.

Put/Call Ratio Reflects Trader Optimism

Traders can gauge overall 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 Put/Call ratio of 0.7 indicates that the open interest (OI) of puts is slower than that of calls and therefore trending upwards. Conversely, the 1.4 indicator favors put options, which can be considered bearish.

Electronic money

BTC Options Put/Call Volume Ratio | Source:

With the exception of a brief moment on March 2 when the price of Bitcoin fell to $22,000, since February 25, call options have mostly outpaced neutral to put options. Additionally, the current put/call volume ratio of 0.71 suggests that the Bitcoin options market is mostly neutral to bullish strategies, favoring the bulls.

From the perspective of the derivatives market, the market is showing resilience, so regardless of the failure of the bearish indicators of the ascending channel, Bitcoin traders can expect no further correction. The 4% weekly decline in total market capitalization reflects the uncertainty posed by Silvergate and does not appear to be sufficient to pose a systemic risk.

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Ming Ying

As reported by Cointelegraph

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