Bitcoin and Ethereum had a rough week, but derivatives data reveals a silver lining

The crypto market saw a sharp decline in its valuation this week after Coinbase, the largest U.S. exchange reported a $430m quarterly net loss. South Korea also announced plans to tax crypto gains at 20%.

The total market crypto market cap experienced a 39% decline from $1.81 trillion down to $1.10 trillion within seven days. This is a remarkable correction for such a volatile asset. The last time a similar decrease in valuation was seen was February 2021. This created bargains for those who take on risk.

USD billion total crypto market capitalization Source: TradingView

Despite the volatility this week, there were some relief bounces. Bitcoin (BTC), which was at $25,400, bounced 18% to $30,000, while Ether (ETH), which dropped to $1,700, saw a short rally to $2,000.

According to data from the Purpose bitcoin ETF, institutional investors purchased the dip. Canada is the country where the exchange-traded instrument is listed. It added 6,903 BTC to its portfolio on May 12, making it the largest single-day buy in history.

Janet Yellen, the United States Treasury Secretary, stated on May 12 that the stability of the stablecoin market was not a threat. Yellen also stated the following during a hearing by the House Financial Services Committee:

They present the same risks as bank run-related deaths for hundreds of years.

In seven days, the total crypto capitalization fell 19.8%

Over the past seven days, the aggregate market capitalization for all cryptocurrencies fell by 19.8% to $1.4 trillion. Some altcoins with mid-capitalization dropped by more than 45% within a week.

Here are the top losers and gainers of the 80 most valuable cryptocurrencies based on market capitalization.

Weekly winners and losers from the top-80 coins Source: Nomics

Maker (MKR), a competitor algorithmic stablecoin, was unable to profit from its demise. TerraUSD (UST) was unable to withstand the market downturn and broke its peg below $1. Dai (DAI), however, remained fully functional.

Terra (LUNA), which was a cryptocurrency, experienced a spectacular 100% crash. The foundation that manages the ecosystem reserve had to sell its Bitcoin position at a loss to offset the stablecoin’s breaking below $1.

Fantom (FTM), also experienced a 15.3% drop in total value locked, which is the amount of FTM coin deposited on the ecosystem’s smart contracts. Fantom has been in trouble since Anton Nell and Andre Cronje, prominent Fantom Foundation team members, resigned.

Retail traders show little interest in Tether Premium

Indirectly, the OKX Tether premium (USDT), measures crypto-demand from Chinese retail traders. It measures the difference in peer-to-peer USDT trades between China and the official U.S. currency.

The indicator’s fair value is 100 percent if there is excessive buying demand. Tether’s market offering is oversubscribed during bearish markets, leading to a discount of 2% or more.

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

The Tether premium is currently at 101.3%. This is slightly positive. There has not been panic in the last two weeks. These data are bullish because they show that Asian retail demand has not diminished, despite the fact that cryptocurrency total capitalization fell 19.8% in the last seven days.

Related: What happened? The Terra scandal exposes the flaws in the crypto industry

Altcoin funding rates are also at alarming levels. The embedded rate for perpetual contracts (inverse swaps), which are usually charged every eight hours, is a perpetual rate. Because their prices tend to closely match regular spot market rates, these instruments are preferred by retail traders.

This fee is paid by exchanges to avoid imbalances in exchange risk. Positive funding rates indicate that buyers (longs) require more leverage. The opposite happens when shorts (sellers), require more leverage. Therefore, the funding rate turns negative.

7-day accumulated perpetual forwards funding rate. Source: Coinglass

You can see that the seven-day accumulated funding rate is mostly negative. This indicates that sellers have a higher leverage (shorts). For traders who hold futures positions, Solana’s (SOL), negative 0.90% weekly interest equals 3.7% per lună, which is a significant burden.

The accumulated funding rate, however, did not show the same level of leverage selling pressure as the other leading cryptocurrency. The accumulated funding rate can move to negative 3% per mois if there is an imbalance due to excessive pessimism.

Leverage shorts (sellers), in the futures markets for Bitcoin or Ethereum are absent. The modest bullishness of Asian retail traders can be taken as very healthy, especially after a weekly performance of -19.8%.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.

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