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

The total capitalization of the cryptocurrency market decreased by 24% between Nov. 8 and Nov. 10, reaching a low of $770 billion. However, after the initial panic was subdued and forced liquidations of future contracts no longer pressuring asset prices, a sharp recovery of 16% followed.

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

This week’s decline is not the market’s first rodeo below the $850 billion market capitalization level, and a similar pattern emerged in June and July. In both cases, support showed strength, but the $770 billion intraday low on Nov 9 was the lowest since December 2020.

The 17.6% weekly decline in total market capitalization was largely driven by Bitcoin (BTC) 18.3% loss and Ether’s (ETH) 22.6% negative price move. Still, the price impact was more severe on altcoins, with 8 of the top 80 coins losing 30% or more in the period.

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

FTX token (FTT) and Solana (sole) were severely impacted by liquidations following the insolvency of the FTX exchange and Alameda Research.

Aptos (APT) is down 33% though deny the rumours that Aptos Labs or Aptos Foundation treasuries are held by FTX.

Stablecoin demand remains neutral in Asia

USD coin (USDC) premium is a good gauge of China-based crypto retail demand. It measures the difference between China-based peer-to-peer trading and the United States dollar.

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

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

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

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

Some buyers leverage using the futures market

A perpetual contract, also known as a reverse swap, has a fixed rate that is usually filled every eight hours. Exchanges use these fees to prevent exchange risk imbalances.

A positive funding rate indicates that longs (buyers) are demanding more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the cost level to turn negative.

Perpetual futures 7 days cost rate on November 11. Source: Coinglass

As explained above, the 7-day funding level is slightly negative for the two largest cryptocurrencies and the data points to excessive demand for shorts (sellers). Although there is a weekly fee of 0.40% to keep the position open, it is nothing to worry about.

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

Related: Solana TVL drops by nearly a third as FTX turmoil shakes the ecosystem: Finance Redefined

The put option/call ratio points to worsening sentiment

Traders can gauge the overall market sentiment 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 ones.

A 0.70 put-to-call ratio indicates that put options open interest lag that calls are more bullish by 30% and therefore bullish. In contrast, the indicator 1.20 favors placing the option by 20%, which can be considered bearish.

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

As the price of Bitcoin broke below $18,500 on November 8, investors rushed to seek downside protection. As a result, the put-to-call ratio subsequently increased to 0.65. Still, the Bitcoin options market is still more strongly populated by a neutral-to-bearish strategy, as the current level of 0.63 indicates.

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