2 metrics signal the $1T crypto market cap support likely won’t hold


Written by

Kevin Lopez
Published on

November 1, 2022

The lack of stablecoin premiums and futures market activity in Asia indicates a lack of confidence among buyers despite the cryptocurrency's weekly gain of 8.5%.

Key points:

  • The cryptocurrency market was positively impacted by a 6.3% weekly rally in the Russell 2000 mid-capitalization stock market index.
  • Despite the 8.5% cryptocurrency market capitalization increase, no additional demand came from Asian retail investors.
  • The accumulated seven-day funding rate is either slightly positive or neutral for the largest cryptocurrencies by open interest. Such data indicates a balanced demand between leverage longs (buyers) and shorts (sellers).

The cryptocurrency broke the $1 trillion market cap resistance on Oct. 26, which has remained strong for the past 41 days. Despite Bitcoin’s weekly gain of 5.5%, the total value of the 20,000 listed tokens surged by 8.5% between Oct. 24 and Oct. 31.

Cont 1

Total crypto market cap, USD (in billions). Source: TradingView

The cryptocurrency market was positively influenced by the Russell 2000 midcap market index's weekly gain of 6.3%. Some encouraging news was accompanied by positive tailwinds in traditional markets.

For example, on October 26, 55,000 BTC was withdrawn from Binance, a record high. Typically, analysts see a reduction in the number of tokens on exchanges as a bullish indicator as outright selling pressure eases.

Additionally, exchange and wallet provider Blockchain.com has partnered with payment processing giant Visa to launch a crypto card. The cryptocurrency company announced on Oct. 26 that there will be no registration or annual fees, no transaction fees, and users will receive 1 percent of all digital asset purchases.

Instead of focusing on Bitcoin, cryptocurrency traders spread their bets on altcoins. Therefore, comparing the winners and losers of the top 80 coins provides skewed results, as 7 have gained 20% or more over the past week.

Cont 2

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

Dogecoin surged 112% after Elon Musk, the billionaire CEO of SpaceX and Tesla, completed the acquisition of social media network Twitter. Musk’s enthusiasm for memecoin is known to inspire merchants to raise their expectations for potential payment integrations.

Mina Protocol’s MINA token jumped 28% in an Oct. 27 Ecosystem Update report that highlighted its zero-knowledge testnet. The protocol promises efficient layer 1 smart contract zkApps adding unique data protection features and the ability to connect to external data sources.

The native tokens of smart contract networks Klaytn, Cosmos and Avalanche — KLAY, ATOM and AVAX, respectively — rose 16.5% after ether. Additionally, the Ethereum network has been congested for the past three weeks, with average transaction fees exceeding $3.

Stablecoin demand in Asia remains neutral

USD coin premium is a good indicator of demand from Chinese cryptocurrency retailers. It measures the difference between Chinese peer-to-peer transactions and the U.S. dollar.

Excessive buying demand tends to push the metric 100% above fair value, and during bearish markets, the stablecoin market is flooded with supply, leading to discounts of 4% or more.

Cont 3

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

Currently, the USDC premium is 100.8%, unchanged from the previous week. Therefore, despite the 8.5% increase in the market capitalization of cryptocurrencies, there is no additional demand from Asian retail investors. However, the figures shouldn't be worrying, as it partly reflects a 56% year-to-date decline in total capital.

Futures market sentiment is mixed

Perpetual contracts, also known as inverse swaps, have embedded interest rates that are typically calculated every eight hours. Exchanges use this fee to avoid exchange rate risk imbalances.

A positive funding rate indicates that bulls (buyers) need more leverage. However, when bears (sellers) need additional leverage, the opposite happens, making funding rates negative.

Cont 4

Accumulated perpetual futures funding rate on Oct. 31. Source: Coinglass

As the chart above shows, the 7-day cumulative funding rates for the largest cryptocurrencies are either slightly positive or neutral. These figures indicate a balance of demand between leveraged longs (buyers) and short positions (sellers).

Faced with a lack of stablecoin demand in Asia and mixed returns on perpetual contracts, traders are still lacking confidence even as the total cryptocurrency market cap has surpassed $1 trillion.

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