Bitcoin and Ethereum have had a rough week, but derivative data shows a silver lining.

Bitcoin and Ethereum have had a rough week, but derivative data shows a silver lining.

This week, the cryptocurrency market suffered a sharp drop in valuation after Coinbase, the main U.S. exchange, reported a quarterly net loss of $ 430 million and South Korea announced plans to introduce a 20% tax on cryptocurrency earnings land.

At its worst, the total capitalization of the cryptocurrency market fell by 39% from $ 1.81 trillion to $ 1.10 trillion in seven days, which is a significant correction even for a volatile asset class. A similar decline in valuation was seen in late February 2021, creating benefits for risk takers.

Total cryptocurrency market capitalization, in billions of US dollars. Source: Trade View

Despite this week’s volatility, there have been some relief bounces: bitcoin (BTC) has recovered 18% from a minimum of $ 25,400 to the current level of $ 30,000, while the price of Ether (ETH) has rallied briefly as low as $ 2,100 . after falling to a low of almost one year at $ 1,700.

Institutional investors bought lower, according to data from Purpose Bitcoin ETF. This exchange trading instrument is listed in Canada and added 6,903 BTC to May 12, representing the largest one – day purchase on record.

On May 12, U.S. Treasury Secretary Janet Yellen said that the stablecoin market is not a threat to the country’s financial stability. During a House Financial Services Committee hearing, Yellen said:

“They carry the same risks that we have known for centuries about running a bank.”

Total Cryptocurrency Capitalization Down 19.8% in Seven Days

Aggregate market capitalization of all currencies has decreased by 19.8% over the past seven days, and currently stands at $ 1.4 trillion. However, some mid-capital altcoins were destroyed and fell over 45% in one week.

Below are the top gains and losers among the top 80 cryptocurrencies by market capitalization.

Weekly winners and losers in the top 80 medals. Source: Nomics

Maker (MKR) took advantage of the obsolescence of competitive algorithmic stablecoin. While TerraUSD (UST) complied with the downturn in the market, breaking its pins well below $ 1, Dai (DAI) remained fully operational.

Terra (LUNA) faced an incredible 100% drop after the foundation responsible for administering the ecosystem reserve sold its bitcoin position at a loss and issued a trillion LUNA tokens to compensate for breaking its stablecoin under 1 dollar.

Fantom (FTM) also addressed a one-day fall of 15.3% in Total Locked Value, the amount of FTM coins deposited on smart contracts in the ecosystem. Fantom has been struggling since significant members of the Fantom Foundation team, Andre Cronje and Anton Nell, resigned from the project.

Bounty for Tether sees occasional demand from retail traders

OKX Tether (USDT) premium indirectly measures cryptocurrency demand from retail traders in China. It measures the difference between China-based USDT peer-to-peer exchanges and the official currency in US dollars.

Excessive demand for the purchase of the indicator exceeds the fair value of 100%. On the other hand, the Tether market supply is flooded during bear markets, resulting in a 2% or more discount.

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

Currently, the Tether premium stands at 101.3%, which is slightly positive. Also, no panic has been observed in the last two weeks. Such data show that demand from Asian retailers is not waning, which is bullish considering that total cryptocurrency capitalization has fallen 19.8% in the last seven days.

See also: What happened ? Terra debacle highlights flaws in the cryptocurrency industry

Altcoin funding rates have also fallen to worrying levels. Perpetual contracts (reverse swaps) have an embedded rate that is usually charged every eight hours. These instruments are the derivatives chosen by retail traders, because their price tends to adhere perfectly to regular spot markets.

Exchanges use this tariff to avoid currency risk imbalances. A positive financing rate indicates that ships (buyers) are looking for more leverage. The opposite, however, occurs when the shorts (sellers) require additional leverage, causing the funding rate to become negative.

Accumulated perpetual futures funding rate seven days. Source: Coinglass

Note that the cumulative seven-day funding rate is largely negative. These data indicate higher leverage from vendors (shorts). For example, Solana (SOL) works at a negative weekly rate of 0.90% to 3.7% per month, a heavy burden on traders with futures positions.

However, the two major cryptocurrencies did not face the same leverage selling pressure, as measured by the cumulative rate of funding. Typically, when an imbalance is caused by excessive pessimism, this rate can easily go below a negative 3% per month.

The lack of leverage shorts (shorts) in the bitcoin and ethereum futures markets and the modest rise in Asian retail traders should be interpreted as extremely healthy, especially after a weekly performance of -19.8%.

The views and opinions expressed herein are those of the author only and do not necessarily reflect the views of Cointelegraph. All investment and business transactions involve risk. You should do your own research before making a decision.

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