Selling in the market may subside, but traders are on the sidelines until BTC confirms $20,000 as support
The total crypto market capitalization fell off a cliff between June 10 and June 13 as it fell below $1 trillion for the first time since January 2021. Bitcoin (BTC) fell 28% in a week and Ether (ETH) faced an agonizing 34.5% correction. .
Currently, the total crypto cap is $890 million, a negative performance of 24.5% since June 10. This certainly raises the question of how the two major crypto assets managed to underperform the remaining coins. The answer lies in the $154 billion worth of stablecoins that skew the overall market performance.
Even though the chart is showing support at the $878 billion level, it will be some time before traders factor in every recent event that has impacted the market. For example, the US Federal Reserve raised interest rates by 75 basis points on June 15, the biggest increase in 28 years. The central bank also launched a balance sheet reduction in June, aimed at reducing its positions by $8.9 trillion, including mortgage-backed securities (MBS).
Venture capital firm Three Arrows Capital (3AC) has reportedly failed to meet margin calls from its lenders, raising major insolvency red flags across the industry. The company’s heavy exposure to Grayscale Bitcoin Trust (GBTC) and Lido’s Staked ETH (stETH) was partly responsible for the mass liquidation events. A similar issue forced crypto lending and staking firm Celsius to suspend user withdrawals on June 13.
Investors’ spirits are indeed shattered
The bearish sentiment was clearly reflected in the crypto markets as the Fear and Greed Index, a data-driven sentiment gauge, hit 7/100 on June 16. The reading was the lowest since August 2019 and was last seen outside the “extreme scare” sector on May 7.
Below are the winners and losers since June 10. Curiously, Ether was the only top 10 crypto to make the list, which is unusual during strong corrections.
WAVES lost another 37% after the project’s largest decentralized finance (DeFi) app, Vires Finance, implemented a daily withdrawal limit of $1,000 stablecoins.
Ether fell 34.5% as developers postponed the move to a proof-of-stake consensus mechanism for another two months. The “difficulty bomb” will essentially stop mining processing, clearing the way for smelting.
Aave (AAVE) traded down 33.7% after MakerDAO voted to cut off lending platform Aave’s ability to generate Dai (DAI) for its collateral-free lending pool. The decision made by the community aims to mitigate the protocol’s exposure to potential impact from the staked Ether (stETH) collateral.
Asian traders flew to stablecoins
The OKX Tether (USDT) premium is a good indicator of demand from China-based retail crypto traders. It measures the difference between peer-to-peer (P2P) transactions based in China and the US dollar.
Excessive buying demand tends to pressure the indicator above the 100% fair value, and during bear markets the market supply of Tether is flooded and results in a discount of 4% or more .
Contrary to expectations, Tether had been trading at a premium in Asian peer-to-peer markets since June 12. Despite the crypto price selloff, investors sought protection in stablecoins instead of fiat currency. This move lasted until June 17, when USDT matched its price against the official exchange rate.
Crypto derivative metrics should be analyzed to rule out externalities specific to the stablecoin market. For example, perpetual contracts have a built-in rate that is typically billed every eight hours. Exchanges use these fees to avoid currency risk imbalances.
A positive funding rate indicates that longs (buyers) require more leverage. However, the opposite situation occurs when the shorts (shorts) require additional leverage, causing the funding rate to become negative.
These derivative contracts show greater demand for leveraged (bearish) short positions across the board. Although the numbers for Bitcoin and Ether are insignificant, the situation of the TRX token and Polkadot (DOT) raises concerns.
Pokadot’s negative weekly rate of 0.90% works out to 3.7% per month, meaning those betting on falling prices are willing to pay a reasonable fee to maintain their leveraged positions. This is usually interpreted as a sign of trust from the bears; so slightly worrying.
The market has fallen 70% and there is still no demand for long levers
The big question is to what extent investor fear and lack of appetite for leveraged buyers is retrograde despite the 70% correction since the peak in November 2021. It is encouraging to know that the Asian traders moved their positions to Tether instead of exiting all markets for fiat deposits.
There likely won’t be a clear sign of a bottom formation, but Bitcoin bulls need to hold on at $20,000 to avoid breaking a 13-year pattern of never falling below the cycle’s all-time high four years previous.
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