Bitcoin and Ethereum had a difficult week, but derivatives show silver lining

Bitcoin and Ethereum had a difficult week, but derivatives show silver lining – Mail Bonus

This week, the cryptocurrency market suffered a sharp drop in valuations after Coinbase, the leading US stock exchange, announced a quarterly $ 430 million loss and South Korea announced plans to introduce a 20% tax on cryptocurrency profits.

At its worst moment, the total market value of the cryptocurrency market was facing a 39% drop from $ 1.81 trillion to $ 1.10 trillion in seven days, which is an impressive correction even for a volatile asset class. A similar reduction in the size of the valuation was last seen in February 2021 and created offers for those who take risks.

Total market value of cryptocurrencies, billions of US dollars. Source: TradingView

Even with this week’s volatility, there were some relief bounces as Bitcoin (BTC) jumped 18% from the $ 25,400 low to the current $ 30,000 level and Ether (ETH) prices also rose to $ 2,100 after falling to a near-year low of $ 1,700 .

Institutional investors bought the dip, according to information from the Purpose Bitcoin ETF. The bond is listed in Canada and added 6,903 BTC on May 12, the largest one-day purchase ever recorded.

On May 12, US Treasury Secretary Janet Yellen said the stablecoin market was not a threat to the country’s financial stability. In the hearing of the House Financial Services Committee, Yellen added:

“They involve the same kind of risk that we have known for centuries in connection with bank robberies.

Total crypto financing decreased by 19.8% in seven days

The combined market value of all cryptocurrencies fell by 19.8% over the past seven days and now stands at 1.4 trillion dollars. However, some medium-sized altcoins were abolished and dropped by more than 45% in one week.

Below are the gains and losses among the 80 largest cryptocurrencies by market value.

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

Maker (MKR) benefited from the fall of a competitive algorithmic stablecoin. Although TerraUSD (UST) fell due to a market downturn, breaking its connection well below $ 1, Dai (DAI) remained fully active.

Terra (LUNA) faced an incredible 100% collapse after the agency responsible for managing its ecosystem reserves was forced to sell its Bitcoin position at a loss and issue trillions of LUNA tokens to compensate for its stablecoin going below $ 1.

Phantom (FTM) also faced a 15.3% one-day drop in the total value of locked, the amount of FTM coins deposited in the ecosystem smart contracts. Fantom has been struggling since prominent members of the Fantom Foundation, Andre Cronje and Anton Nell, resigned from the project.

Tether premium shows ever-increasing demand from retailers

The OKX Tether (USDT) premium indirectly measures the demand for retailers’ encryption in China. It measures the difference between China-based USDT peer-to-peer trading and the official US dollar currency.

Excessive buying demand puts the index above fair value, which is 100%. On the other hand, Tether’s market offer is flooded with a bearish market, resulting in a 2% or higher discount.

Tether (USDT) peer to USD / CNY. Source: OKX

The Tether premium currently stands at 101.3%, which is slightly positive. Furthermore, there has been no panic for the past two weeks. Such data suggest that retail demand in Asia is not disappearing, which is bullish, given that total cryptocurrency funding has fallen by 19.8% over the past seven days.

Connected: What happened? Terra debacle exposes flaws affecting the cryptocurrency industry

Altcoin funding rates have also fallen in concern. Perpetual contracts (reverse contracts) have a built-in exchange rate that is usually charged every eight hours. These instruments are preferred derivatives of retailers because their price tends to fully follow normal local markets.

Stock exchanges use this fee to avoid exchange rate risk imbalances. A positive financing ratio indicates that longs (buyers) demand more indebtedness. However, the opposite is true when shorts (sellers) demand increased indebtedness, which causes the financing ratio to be negative.

Seven days accumulated perpetual future financing rate. Source: Coinglass

Notice how the cumulative seven-day funding ratio is mostly negative. These data indicate more indebtedness from sellers (shorts). For example, the negative 0.90% weekly rate of Solana (SOL) equals 3.7% per month, a considerable burden for traders holding a futures position.

However, two leading cryptocurrencies did not face the same indebtedness of selling pressure, as recommended by the cumulative financing ratio. Usually, when there is an imbalance due to excessive pessimism, that rate can easily fall below a negative 3% per month.

The lack of leveraged shorts (sellers) in the futures markets for Bitcoin and Ethereum and the modest bullishness from Asian retailers should be interpreted as very healthy, especially after -19.8% weekly performance.

The views and opinions expressed herein are those of the authors only and do not necessarily reflect the views of Cointelegraph. Every investment and business involves risk. You should do your own research when making a decision.