2 key indicators cast doubt on the strength of the current crypto market recovery
BTC and altcoins flashed bullish this week, but the perpetual contracts funding rate and Tether premium reflect a lack of confidence from traders.
Analyzing the aggregate cryptocurrency market performance over the past 7 days could give investors the impression that the total market capitalization grew by a mere 4% to $2.03 trillion, but this data is heavily impacted by the top 5 coins, which happen to include two stablecoins.
Excluding Bitcoin (BTC), Ether (ETH), Binance Coin (BNB) and stablecoins reflects a 9.3% market capitalization increase to $418 billion from $382 billion on Feb 4. This explains why so many of the top-80 altcoins hiked 25% or more while very few presented a negative performance.
Gala Games (GALA) announced on Feb. 9 a partnership with world renowned hip-hop star Snoop Dogg to launch his new album and exclusive non-fungible token (NFT) campaign. Gala Games also has plans to support additional content like access to films, comics, and more in the future.
Theta Network (THETA), a decentralized video sharing platform, was fueled by a Theta Labs funding grant to Replay, a Web3 content payment and tracking protocol for content owners. According to the release, Replay’s end-to-end solution will allow Theta users to be fairly rewarded for their contributions.
XRP also rallied after Ripple got permission for a ‘fair notice defense’ to the U.S. Securities and Exchange Commission (SEC). The decision refers to the ongoing court case in which the SEC claimed that Ripple sold XRP as illegal securities.
On the other hand, the worst performers included decentralized storage protocols Arweave (AR) and Dfinity (ICP). Meanwhile, Cosmos (ATOM) saw the total value locked in the CosmosHub smart contract drop by 82% to $1.2 million.
Lastly, Solana (SOL) continued to reflect the negative sentiment directly connected to the Wormhole token bridge smart contract that was exploited on Feb. 2. The $321 million wrapped Ethereum hack was the largest loss so far in 2022.
Tether premium reflects low retail demand
The OKEx Tether (USDT) premium measures the difference between China-based peer-to-peer (P2P) trades and the official U.S. dollar currency. Excessive cryptocurrency retail demand tends to pressure the indicator above fair value, or 100%. On the other hand, bearish markets likely flood Tether’s market offer, causing a 4% or higher discount.
Currently, the metric has a 99.5% reading, which is neutral, but the gap has been closing over the past 6 weeks. This signals that retail demand is picking up and is a positive reading considering that the total cryptocurrency capitalization remains 35% below the $3 trillion all-time high.
Futures markets confirm the lack of “euphoria”
Perpetual contracts, also known as inverse swaps, have an embedded rate usually charged every eight hours. Those measures are established to avoid exchange risk imbalances.
A positive funding rate indicates that longs (buyers) demand more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, and this causes the funding rate to turn negative.
As depicted above, the eight-hour fee is either zero or slightly negative in most cases. This data indicates a balanced leverage demand from longs (buyers) and shorts (sellers). Had there been a relevant risk appetite from either side, the rate would be above 0.05%, equivalent to 1% per week.
Perpetual futures are retail traders’ preferred derivatives because their price tends to track the regular spot markets. The Tether premium and the funding rate are neutral-to-bearish despite the 4% weekly gain, but one should factor in that cryptocurrencies have recently faced a 50% drawdown, meaning these indicators are somewhat skewed.