Cryptocurrencies are now one of the top investment options, and investors come to the market with the vision of generating meteoric returns. As we all know, the market has gone through the most challenging year and a vicious cycle in 2022. The problem that started with the Terra Luna crash was followed by major economic issues, a looming fear of inflation, and increasing energy bills.
2023 came in with the promise of a new bull run, judging from the first weeks of January. The total crypto market has found resistance at $1.2T, and this made investors wonder whether the bulls are well positioned for a breakout this year. Let’s see.
Crypto Market Analysis
The crypto market kickstarted the year with a tremendous rally, rising away from its 2022’s lows. It gained almost 11% between March 16 and 18 but then found battling at its resistance level of $1.2 trillion. The market followed the same pattern in August 2022, when it reached the trillion value but was plunged by a 19.7% decline to $960 billion within two weeks.
Total crypto market cap in USD, 12-hour. Source: TradingView
One of the sources of this sudden momentum between March 3 and 23 is the change in the Federal Reserve’s monetary policy. The balance sheet of the U.S. Federal Reserve was increased by $393 billion to provide short-term loans for failing banks. The key objective here was to reduce inflation, which affected the cost of living and the entire economic expansion in the United States. On the other hand, the central bank was on a mission to offload some of its debt instruments, exchange-traded funds, and mortgage-backed securities. Since the Fed acts as a lifeline for struggling banks and hedge funds, the revision of this strategy is initially bullish for risk assets.
On March 22, the sector’s regulatory risk heightened, followed by the Wells notice from the SEC to Coinbase. Several features, like the exchange’s staking program, wallet services, and even some of its digital asset listings, could be affected by the regulator. This created a major stir of uncertainties again looming around the market, with investors trying to figure out which assets qualify as securities.
However, derivatives data exposes the fact that a compelling rally toward $1.35 trillion is just around the corner, after which there could be a retest of the $ 1 trillion threshold. The total crypto market capitalization slightly remained stable since March 20. Cryptocurrencies like XRP gained over 17%, given investors’ expectations for a positive ending in the legal battle between SEC. The upcoming halving event of LTC in August would be another added advantage for the crypto market rally.
Increasing Confidence Of Traders - Hitting Above $1 Trillion
Measuring the amount of activity going through call/buy options and put/sell options is one-way traders read the market sentiment. Call options refer to bullish strategies, while put options signal bearish rallies.
For instance, the data below shows that a put-to-call ratio of 0.70 simply means that put option open interest lags behind the greater number of call options. At the same time, a 1.40 indicator favors put options, which is a bearish sign.
BTC options volume put-to-call ratio. Source: Laevitas
BTC, the king of cryptocurrencies, has been on a rather stable rally over the past few weeks. The crypto’s put-to-call ratio is confusing as it is either balanced or favoring neutral-to-bullish call options since March 10. Options traders imply that they are not increasingly concerned about a price correction for BTC anytime soon. However, the price has risen by over 41% in the past two weeks, and investors are highly bullish about its future perspectives.
On the other hand, experts like Mark Yusko, founder, and CEO of Morgan Creek Capital Management, opine that the next bull market, or as he calls it, “the crypto summer,” would start sooner in the second quarter of 2023, given its combination of more lightened central bank policies and the anticipation of BTC’s next bull run.
Despite Resistance At $1.2 trillion, Leverage Demand Remains Balanced
Perpetual contracts, also referred to as inverse swaps, typically come with an inherent interest rate applied every eight hours. This fee is utilized by exchanges to prevent any imbalances in exchange risk.
A positive funding rate means that demand is greater than leverage for longs or buyers. The opposite occurs when sorts or sellers need extra leverage, turning the funding rate negative.
Perpetual futures accumulated a 7-day funding rate on March 27. Source: Coinglass
Experts are hopeful for a bull run and a significant reduction in liquidation risks soon. Data favors this by exposing the fact that the seven-day funding rate for the majority of the leading cryptocurrencies has been neutral in the past week. This implies that no excessive buying leverage was used to support prices, which would directly fuel the bulls.
BNB was the only exception, as short sellers were required to pay a weekly maintenance fee of 1.25% to hold their positions. However, from a derivative perspective, the recent rally is more sustainable. Moreover, since bulls are well-positioned to defend against any future declines, it would be a good time for investors to bag their favorite crypto investment.
Zooming out and evaluating the crypto asset class throughout its history, there is an evident boom and bust cycle. Therefore, the market can soon breach the $1.2 T resistance, as the bulls are set to begin another rally this year.