Upside capped at $980B total crypto market, according to derivatives metrics

October 3, 2022 Coin Telegraph

Upside capped at 0B total crypto market, according to derivatives metrics

A bearish formation in the total market capitalization chart has been gaining strength after two failures to break its resistance level.

It is becoming increasingly challenging to support a bullish short-term view for cryptocurrencies as the total crypto market capitalization has been below $1.4 trillion for the past 146 days. Furthermore, a descending channel initiated in late July has limited the upside after two strong rejections.

*Total crypto market cap, USD. Source: TradingView*

The 1% weekly negative performance in cryptocurrency markets was accompanied by stagnation in the S&P 500 stock market index, which remained basically flat at 3,650. Uncertainty continues to limit the eventual recovery as worsening global economic conditions have caused trans-Pacific shipping rates to plunge 75% versus the previous year, forcing ocean carriers to cancel dozens of sailings.

Conflicting macroeconomic signals limit risk market upside

From one side, the global macroeconomic scenario improved after the United Kingdom's government reverted plans to cut income taxes on Oct. 3. On the other hand, investors' fear increased as global investment bank Credit Suisse's credit default swaps reached their highest level on Oct. 3. Such instruments allow investors to protect against default, and their cost surpassed levels seen at the height of the 2008 financial crisis.

Below is a list of the winners and losers of the crypto market capitalization's 1% loss to $935 billion. Bitcoin (BTC) stood out with a 1% gain, which led its dominance rate to hit 41.5%, the highest since Aug. 5.

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

Quant (QNT) jumped 15% on speculation that its interoperable blockchain protocol would find adoption across governmental and regulatory bodies.

Maker (MKR) gained 10.6% after MakerDAO launched a proposal to decrease the stability fee for the Curve protocol staked Ether (ETH) pool.

UniSwap Protocol (UNI) gained 10.6% after UniSwap Labs, a startup contributing to the protocol, reportedly raised over $100 million from venture capitalists.

Still, a single week of negative performance is not enough to interpret how professional traders are positioned. Those interested in tracking whales and market markers should analyze derivatives markets.

Derivatives markets point to further downside

For instance, perpetual futures, also known as inverse swaps, have an embedded rate usually charged every eight hours. Exchanges use this fee 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, causing the funding rate to turn negative.

*Accumulated 7-day perpetual futures funding rate on Oct. 3. Source: Coinglass*

Perpetual contracts reflected neutral sentiment as the accumulated funding rate was relatively flat in most cases over the past seven days. The only exception was Ether Classic (ETC), although a 0.50% weekly cost to maintain a short (bear) position should not be deemed relevant.

Since Sept. 26, the yields on the U.S. Treasury's 5-year notes declined from 4.2% to 3.83%, indicating investors are demanding fewer returns to hold extremely safe assets. The flight-to-quality movement shows how risk-averse traders are as mixed sentiment emerges from lackluster economic indicators and corporate earnings.

For this reason, bears believe that the prevailing longer-term descending formation will continue in the upcoming weeks. In addition, professional traders' lack of interest in leveraging cryptocurrency longs (buys) is evident in the neutral futures funding rate. Consequently, the current $980 billion market capitalization resistance should remain strong.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Report: CME Group to Face off With FTX After Filing for Futures Commission Merchant Status

October 2, 2022 Bitcoin.com

Pro traders don’t expect Bitcoin to break and hold $20,000 anytime soon

September 29, 2022 Coin Telegraph

Pro traders don’t expect Bitcoin to break and hold ,000 anytime soon

bitcoin crash

Bears have controlled BTC price by forcing 111 daily closes below $25,000 and derivatives data shows a reversal of this trend is highly unlikely.

One hundred and eleven days have passed since Bitcoin (BTC) posted a close above $25,000 and this led some investors to feel less sure that the asset had found a confirmed bottom. At the moment, global financial markets remain uneasy due to the increased tension in Ukraine after this week’s Nord Stream gas pipeline incident.

The Bank of England's emergency intervention in government bond markets on Sept. 28 also shed some light on how extremely fragile fund managers and financial institutions are right now. The movement marked a stark shift from the previous intention to tighten economies as inflationary pressures mounted.

Currently, the S&P 500 is on pace for a consecutive third negative quarter, a first since 2009. Additionally, Bank of America analysts downgraded Apple to neutral, due to the tech giant’s decision to scale back iPhone production due to "weaker consumer demand." Lastly, according to Fortune, the real estate market has shown its first signs of reversion after housing prices decreased in 77% of United States metropolitan areas.

Let's have a look at Bitcoin derivatives data to understand if the worsening global economy is having any impact on crypto investors.

Pro traders were not excited by the rally to $20,000

Retail traders usually avoid quarterly futures due to their price difference from spot markets but they are professional traders' preferred instruments because they prevent the fluctuation of funding rates that often occurs in a perpetual futures contract.

*Bitcoin 3-month futures annualized premium. Source: Laevitas*

The indicator should trade at a 4% to 8% annualized premium in healthy markets to cover costs and associated risks. The chart above shows that derivatives traders have been neutral to bearish for the past 30 days while the Bitcoin futures premium remained below 2% the entire time.

More importantly, the metric did not improve after BTC rallied 21% between Sept. 7 and 13, similar to the failed $20,000 resistance test on Sept. 27. The data basically reflects professional traders' unwillingness to add leveraged long (bull) positions.

One must also analyze the Bitcoin options markets to exclude externalities specific to the futures instrument. For example, the 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection.

In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 12%. On the other hand, bullish markets tend to drive the skew indicator below negative 12%, meaning the bearish put options are discounted.

*Bitcoin 30-day options 25% delta skew: Source: Laevitas*

The 30-day delta skew has been above the 12% threshold since Sept. 21 and it's signaling that options traders were less inclined to offer downside protection. As a comparison, between Sept. 10 and 13, the associated risk was somewhat balanced, according to call (buy) and put (sell) options, indicating a neutral sentiment.

The small number of futures liquidations confirm traders’ lack of surprise

The futures and options metrics suggest that the Bitcoin price crash on Sept. 27 was more expected than not. This explains the low impact on liquidations. Despite the 9.2% correction from $20,300 to $18,500, a mere $22 million of futures contracts were forcefully liquidated. A similar price crash on Sept. 19 caused a total of $97 million in leverage futures liquidations.

From one side, there's a positive attitude since the 111-day long bear market was not enough to instill bearishness in Bitcoin investors according to the derivatives metrics. However, bears still have unused firepower, considering the futures premium stands near zero. Had traders been confident with a price decline, the indicator would have been in backwardation.

Bitcoin holds $19K, but volatility expected as Friday’s $2.2B BTC options expiry approaches

September 28, 2022 Coin Telegraph

<div>Bitcoin holds K, but volatility expected as Friday's .2B BTC options expiry approaches</div>

Bitcoin Price

Traders expect an uptick in volatility due to the possibility of September’s $2.2 billion options expiry putting pressure on BTC price near a critical support level.

This week the $20,000 resistance is proving to be stronger than expected and even after Bitcoin price rejected at this level on Sept. 27, BTC bulls still have reasons to not give up.

According to the 4-month-long descending triangle, as long as the $18,500 support holds, Bitcoin price has until late October to determine whether the downtrend will continue.

*Bitcoin/USD 1-day price index. Source: TradingView*

Bitcoin bulls might have been disappointed by the lackluster price performance as BTC has failed multiple times to break above $20,000, but macroeconomic events might trigger a rally sooner than expected.

Some analysts point to the United Kingdom's unexpected intervention in the bond market as the breaking point of the government’s debt credibility. On Sept. 28, the Bank of England announced that it would begin the temporary purchase of long-dated bonds to calm investors after a sharp yield increase, the highest since 1957.

To justify the intervention, the Bank of England stated, "were dysfunction in this market to continue or worsen, there would be a material risk to U.K. financial stability." Taking this measure is diametrically opposite to the promise of selling $85 billion in bond holdings within 12 months. In short, the government's credibility is being questioned and as a result investors are demanding much higher returns to hold U.K. debt.

The impact of the government's efforts to curb inflation are beginning to impair corporate revenues and according to Bloomberg, Apple recently backed off plans to increase production on Sept. 27. Amazon, the world's biggest retailer, is also estimated to have shuttered plans to open 42 facilities, as per MWPVL International Inc.

That is why the $2.2 billion Bitcoin (BTC) monthly options expiry on Sept. 30 will put a lot of price pressure on the bulls, even though bears seem slightly better positioned as Bitcoin attempts to hold on to $19,000.

Most of the bullish bets were placed above $21,000

Bitcoin's rally toward the $22,500 resistance on Sept. 12 gave the bulls the signal to expect a continuation of the uptrend. This becomes evident because only 15% of the call (buy) options for Sept. 30 have been placed at $21,000 or lower. This means Bitcoin bears are better positioned for the expiry of the $2.2 billion in monthly options.

*Bitcoin options aggregate open interest for Sept. 30. Source: CoinGlass*

A broader view using the 1.49 call-to-put ratio shows a skewed situation with bullish bets (calls) open interest at $1.26 billion versus the $850 million put (sell) options. Nevertheless, as Bitcoin currently stands near $19,000 and bears have a dominant position.

If Bitcoin price remains below $20,000 at 8:00 am UTC on Sept. 30, only $37 million worth of these call (buy) options will be available. This difference happens because there is no use in the right to buy Bitcoin at $20,000 or $21,000 if it trades below that level on expiry.

Bears could pocket a $350 million profit

Below are the four most likely scenarios based on the current price action. The number of options contracts available on Sept. 30 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $18,000 and $19,000: 500 calls vs. 19,800 puts. The net result favors bears by $350 million.
Between $19,000 and $20,000: 2,000 calls vs. 16,000 puts. The net result favors bearish bets by $270 million.
Between $20,000 and $21,000: 5,900 calls vs. 12,700 puts. The net result favors bears by $135 million.
Between $21,000 and $22,000: 10,100 calls vs. 11,300 puts. The net result is balanced between bulls and bears.

This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.

Regulatory pressure could complicate matters for Bitcoin bulls

Bitcoin bulls need to push the price above $21,000 on Sept. 30 to balance the scales and avoid a potential $350 million loss. However, Bitcoin bulls seem out of luck since the U.S. Federal Reserve chairman called for "crypto activities" regulation on Sept. 27, alerting "very significant structural issues around the lack of transparency."

If bears dominate the September monthly options expiry, that will likely add firepower for further bets on the downside for Bitcoin price. But, at the moment, there is no indication that bulls can turn the tables and avoid the pressure from the 4-month-long descending triangle.

Total crypto market cap shows strength even after the Merge and Federal Reserve rate hike

September 22, 2022 Coin Telegraph

Chiliz

Many of the top-80 cryptocurrencies dropped by 15%+ in the past week, but the Tether premium in Asia-based futures markets shows traders remain calm.

Cryptocurrencies have been in a bear trend since mid-August after they failed to break above the $1.2 trillion market capitalization resistance. Even with the current bear trend and a brutal 25% correction, it has not been enough to break the three-month-long ascending trend.

The crypto markets' aggregate capitalization declined 7.2% to $920 billion in the seven days leading to Sept. 21. Investors wanted to play it safe ahead of the Federal Open Markets Committee meeting, which decided to increase the interest rate by 0.75%.

*Total crypto market cap, USD billions. Source: TradingView*

By increasing the cost of borrowing cash, the monetary authority aims to curb inflationary pressure while increasing the burden on consumer finance and corporate debt. This explains why investors moved away from risk assets, including stock markets, foreign currencies, commodities and cryptocurrencies. For instance, WTI oil prices ceded 6.8% from Sept. 14, and the MSCI China stock market index dropped 5.1%.

Ether (ETH) also saw a 17.3% retrace during the 7-day period and many altcoins performed even worse. The Ethereum network Merge and its subsequent impact on other GPU-mineable coins caused some skewed results among the worst weekly performers.

Chiliz (CHZ) rallied 21.5% following two successful fan token launches from MIBR esports team and the VASCO soccer team from Brazil.

XRP gained 16.6% after Ripple Labs called for a federal judge to immediately rule whether the company's XRP token sales violated U.S. securities laws.

ApeCoin (APE) gained 15% as the community expects the staking program to launch, which shall be detailed by Horizen Labs on Sept. 22.

RavenCoin (RVN) and Ethereum Classic (ETC) retraced most of their gains from the previous week as investors realized the hash rate gains from Ethereum miners did not necessarily convert into higher adoption.

Traders’ appetite did not vanish despite the correction

The OKX Tether (USDT) premium is a good gauge of China-based crypto retail trader demand. It measures the difference between China-based peer-to-peer trades and the United States dollar.

Excessive buying demand tends to pressure the indicator above fair value at 100%, and during bearish markets, Tether’s market offer is flooded, causing a 4% or higher discount.

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

The Tether premium currently stands at 100.7%, its highest level since June 15. While still under the neutral area, the indicator showed a modest improvement over the past week. Considering that crypto markets tanked by 7.2%, this data should be viewed as a victory.

Perpetual contracts, also known as inverse swaps, have an embedded rate that is usually charged every eight hours. Exchanges use this fee to avoid exchange risk imbalances.

*Accumulated perpetual futures funding rate on Sept. 21. Source: Coinglass*

As depicted above, the accumulated 7-day funding rate was negative for every altcoin. This data indicates excess demand for shorts (sellers), although it could be dismissed in Ether’s case because investors aiming for the free fork coins during the Merge likely bought ETH and sold futures contracts to hedge the position.

More importantly, Bitcoin's funding rate held slightly positive during a week of price decline and potentially bearish news from the FED. Now that this critical decision has been made, investors tend to avoid placing new bets until some new data provides insights on how the economy adjusts.

Overall, the Tether premium and futures' funding rate show no signs of stress, which is positive considering how badly crypto markets have performed.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Long the Bitcoin bottom, or watch and wait? Bitcoin traders plan their next move

September 19, 2022 Coin Telegraph

Biden

Bitcoin price dropped to $18,270, but derivatives traders didn’t flinch. Here is why.

Bitcoin (BTC) faced a 9% correction in the early hours of Sept. 19 as the price traded down to $18,270. Even though the price quickly bounced back above $19,000, this level was the lowest price seen in three months. However, pro traders held their ground and were not inclined to take the loss, as measured by derivatives contracts.

*Bitcoin/USD price index, 2-hour. Source: TradingView*

Pinpointing the rationale behind the crash is extremely difficult, but some say United States President Joe Biden's interview on CBS "60 Minutes" raised concerns about global warfare. When responding to whether U.S. forces would defend Taiwan in the event of a China-led invasion, Biden replied: "Yes, if in fact, there was an unprecedented attack."

Others cite China's central bank lowering the borrowing cost of 14-day reverse repurchase agreements to 2.15% from 2.25%. The monetary authority is showing signs of weakness in the current market conditions by injecting more money to stimulate the economy amid inflationary pressure.

There is also pressure from the upcoming U.S. Federal Reserve Committee meeting on Sept. 21, which is expected to hike interest rates by 0.75% as central bankers scramble to ease the inflationary pressure. As a result, yields on the 5-year Treasury notes soared to 3.70%, the highest level since November 2007.

Let's look at crypto derivatives data to understand whether professional investors changed their position while Bitcoin crashed below $19,000.

There was no impact on BTC derivatives metrics during the 9% crash

Retail traders usually avoid quarterly futures due to their price difference from spot markets, but they are professional traders' preferred instruments because they prevent the fluctuation of funding rates that often occurs in a perpetual futures contract.

The indicator should trade at a 4% to 8% annualized premium in healthy markets to cover costs and associated risks. Thus, one can safely say that derivatives traders had been neutral to bearish for the past two weeks as the Bitcoin futures premium held below 2% the entire time.

More importantly, the shakeout on Sept. 19 did not cause any meaningful impact on the indicator, which stands at 0.5%. This data reflects professional traders' unwillingness to add leveraged short (bear) positions at current price levels.

One must also analyze the Bitcoin options to exclude externalities specific to the futures instrument. For example, the 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection.

In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 12%. On the other hand, bullish trends tend to drive the skew indicator below negative 12%, meaning the bearish put options are discounted.

The 30-day delta skew had been near the 12% threshold since Sept. 15, and signaled that options traders were less inclined to offer downside protection. The negative price move on Sept. 19 was not enough to flip those whales bearish, and the indicator currently stands at 11%.

The bottom could be in, but it depends on macroeconomic and global hurdles

Derivatives metrics suggest that the Bitcoin price dump on Sept. 19 was partially expected, which explains why the $19,000 support was regained in less than two hours. Still, none of this will matter if the U.S. Federal Reserve raises the interest rates above the consensus or if stock markets collapse further due to the energy crisis and political tensions.

Therefore, traders should continuously scan macroeconomic data and monitor the central banks' attitude before trying to pin a flag on the ultimate bottom of the current bear market. Presently, the odds of Bitcoin testing sub-$18,000 prices remain high, especially considering the weak demand for leverage longs on BTC futures.

Can Unlimited Fiat and Governments Suppress Bitcoin’s Price? 2 Analysts Discuss the Theory and Odds

September 19, 2022 Bitcoin.com

Tired of losing money? Here are 2 reasons why retail investors always lose

September 17, 2022 Coin Telegraph

3AC

A majority of “traders” end up being losers with empty portfolios. Here is exactly why.

A quick flick through Twitter, any social media investing club, or investing-themed Reddit will quickly allow one to find handfuls of traders who have vastly excelled throughout a month, semester, or even a year. Believe it or not, most successful traders cherry-pick periods or use different accounts simultaneously to ensure there’s always a winning position to display.

On the other hand, millions of traders blow up their portfolios and turn out empty-handed, especially when using leverage. Take, for example, the United Kingdom’s Financial Conduct Authority (FCA) which requires that brokers disclose the percentage of their accounts in the region that are unprofitably trading derivatives. According to the data, 69% to 84% of retail investors lose money.

Similarly, a study by the U.S. Securities and Exchange Commission found that 70% of foreign exchange traders lose money every quarter, and eToro, a multinational broker with 27 million users, reported that nearly 80% of retail investors lost money over 12 months.

The same pattern emerges in every market across different continents and decades: retail traders seldom sustain profitable operations. Still, novice and experienced investors think they can overcome that bias due to ingenuity or mass marketing campaigns from influencers, exchanges and algorithmic trading systems.

Below are the 4 culprits behind the inevitable failure of retail traders. There is no easy solution aside from a long-term mentality and dollar-cost average-based strategy of buying a fixed amount every week or month.

Exchange servers have downtime and there are trade rollbacks

In June 2021, the U.S. Financial Industry Regulatory Authority fined Robinhood $70 million, alleging “widespread and significant harm” and “misleading information to millions of its customers” starting in September 2016. Specifically, the regulator cited the platform’s outages between 2018 and 2018, affecting clients’ ability to execute buy and sell orders during significant market volatility periods.

On 8 March 2022, London Metal Exchange (LME), the largest commodities trading venue in Europe, canceled all the trades in nickel futures and deferred the delivery of all physically settled contracts. The reason cited by Bloomberg was “unprofitable short positions, in a massive squeeze that has embroiled the largest nickel producer as well as a major Chinese bank.”

Notice that such a decision is vastly worse for a broker that decides to deliberately halt their platform. In those cases, at least the client can choose another intermediary. A rollback, or trade cancellation, is far more problematic because users had already expected the profits, or maybe even hedged, meaning the trade was part of a broader strategy.

High-frequency trading and unlimited funding

Professional traders use colocation servers, placing a server as close as possible close to an exchange's data center because this significantly reduces transmission delays. These exchanges offer premium services to high-end clients, including the private housing servers on-site.

Besides requiring a significant amount of volume to cover the costs, colocation servers provide high-frequency traders the benefit of running strategies such as pinging, which uses a series of smaller orders to scope whales trying to enter or exit the market.

In addition to being heavily funded, these arbitrage traders usually have additional funding from exchanges. These benefits basically mean they can post trades with no collateral, similar to having credits, providing them with a huge advantage over retail investors.

The evidence? Three Arrows Capital's (3AC) insolvency negatively impacted Deribit exchange, which was forced to cover the loss themselves. Moreover, prominent Bitcoin Cash (BCH) figure, Roger Ver, is being sued by the exchange CoinFLEX for $84 million allegedly owed due to liquidations.

Retail traders need to understand that there is no room for amateurs and realize the intricate relationship between exchanges, venture capitalists, market makers and whales. Whether or not a partnership is on paper, a mutual benefit ensures that these players have preferential access to pre-seed funding rounds, listings and market access.

The only way for investors to opt out of losing money is to give up on trading, and avoid leverage trading like the plague. In reality, investors with six months or longer timeframe stand a chance of being profitable in each of their positions.

Volatility expected as $490M in ETH options expire shortly after the Ethereum Merge

September 14, 2022 Coin Telegraph

Volatility expected as 0M in ETH options expire shortly after the Ethereum Merge

Coin Telegraph

The outcome of the Ethereum Merge will be a primary price drive that dictates whether ETH bears profit from this week’s $490 million options expiry.

Given the current state of the wider crypto market, some traders might be surprised to learn that Ether (ETH) has been trading in an ascending trend for the past 17 days. While the entire cryptocurrency market experienced a 10% decline on Sept. 13, Ether's price held firm near the $1,570 support level.

*Ether/USD price index. Source: TradingView*

In less than 12 hours, the Ethereum network is scheduled to undergo its largest ever upgrade and the possibility of extreme volatility should not be ignored. The transition to a proof-of-stake network will be a game changer for multiple reasons, including a 98.5% cut in energy use and reduced coin inflation.

During an upgrade, there is always the risk of multiple malfunctions, especially in more complex systems like the Ethereum Virtual Machine processing. Even if the upgrade has been relatively smooth on previous testnet versions, it is impossible to predict the outcome of the decentralized applications and second-layer solutions plugged into Ethereum’s ecosystem.

That is precisely why the $490 million Ether options expiry on Aug. 16 will put a lot of price pressure on both sides, even though bulls seem slightly better positioned as Ether nears $1,600.

Most bearish bets are placed below $1,600

Ether's failure to break the $2,000 resistance on Aug. 14 and its subsequent plunge to $1,420 on Aug. 29 gave the bears the signal to expect continuation of the downtrend. That becomes evident as only 12% of the put (sell) options for Sept. 16 have been placed above $1,600. Thus, Ether bulls are better positioned for the expiry of $490 million weekly options.

*Ether options aggregate open interest for Sept. 16. Source: CoinGlass*

A broader view using the 1.06 call-to-put ratio shows a relatively balanced situation with bullish bets (calls) open interest at $252 million versus the $238 million put (sell) options. Nevertheless, as Ether currently stands near $1,600, both sides have similar odds of moving the needle.

If Ether price remains below $1,600 at 8:00 am UTC on Sept. 16, only $27 million worth of these call (buy) options will be available. This difference happens because there is no use in the right to buy Ether at $1,600 or $1,700 if it trades below that level on expiry.

Bears could pocket a $100 million profit

Below are the four most likely scenarios based on the current price action. The number of options contracts available on Sept. 16 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $1,400 and $1,500: 33,000 calls vs. 2,600 puts. The net result favors bears by $100 million.
Between $1,500 and $1,700: 29,600 calls vs. 29,000 puts. The net result is balanced between bulls and bears.
Between $1,700 and $1,800: 49,200 calls vs. 3,800 puts. The net result favors bulls by $80 million.
Between $1,800 and $1,900: 81,400 calls vs. 700 puts. Bulls increase their gains to $145 million.

Macroeconomic turmoil might have helped ETH bears

Ether bulls need to sustain the price above $1,500 on Sept. 16 to balance the scales and avoid a potential $100 million loss. However, Ether bulls were unlucky on Sept. 12 after the United States stock markets fell by $1.6 trillion on Sept. 13 due to a hotter-than-expected inflation report.

There's absolutely no way to predict the outcome of Ethereum Merge, let alone its price impact. However, analysis suggests these three indicators should be watched by traders during the Merge event.

One can never guess the consequences of unexpected delays or even the positive impact of a smooth transition because investors could have priced in the Merge in advance, triggering a "sell the news" event. Consequently, both bulls and bears still have a shot on the Sept. 16 weekly options expiry.

Bitcoin and altcoins pop to the upside, but upcoming macro events could cap the rally

September 12, 2022 Coin Telegraph

Coin Telegraph

The FOMC's decision on Sept. 21 could cause traders to reduce their risk exposure, limiting the recent gains seen across the crypto market.

The 13% gains in the six days leading to Sept. 12 brought the total crypto market capitalization closer to $1.1 trillion, but this was not enough to break the descending trend. As a result, the overall trend for the past 55 days has been bearish, with the latest support test on Sept. 7 at a $950 billion total market cap.

An improvement in traditional markets has accompanied the recent 13% crypto market rally. The tech-heavy Nasdaq Composite Index gained 6.2% since Sept. 6 and WTI oil prices rallied 7.8% since Sept. 7. This data reinforces the high correlation versus traditional assets and places the spotlight on the importance of closely monitoring macroeconomic conditions.

The correlation metric ranges from a negative 1, meaning select markets move in opposite directions, to a positive 1, which reflects a perfectly symmetrical movement. A disparity or a lack of relationship between the two assets would be represented by 0.

*Nasdaq futures and Bitcoin/USD 50-day correlation. Source: TradingView*

As displayed above, the Nasdaq composite index and Bitcoin 50-day correlation currently stand at 0.74, which has been the norm throughout 2022.

The FED’s Sept. 21 decision will set the mood

Stock market investors are anxiously awaiting the Sept. 21 U.S. Federal Reserve meeting, where the central bank is expected to raise interest rates again. While the market consensus is a third consecutive 0.75 percentage point rate hike, investors are looking for signs that the economic tightening is fading away.

A report on the U.S. Consumer Price Index, a relevant inflation metric, is expected on Sept. 13 and on Sept. 15, investor attention will be glued to the U.S. retail sales and industrial production data.

Currently, the regulatory sentiment remains largely unfavorable, especially after the enforcement director for the United States Securities and Exchange Commission (SEC), Gurbir Grewal, said the financial regulator would continue to investigate and bring enforcement actions against crypto firms.

Altcoins rallied, but pro traders were resilient to leverage longs

Below are the winners and losers of last week’s total crypto market capitalization 8.3% gain to $1.08 trillion. Bitcoin (BTC) stood out with a 12.5% gain, which led its dominance rate to hit 41.3%, the highest since Aug. 9.

Terra (LUNA) jumped 107.7% after Terra approved a proposal on Sept. 9 for an additional airdrop of over 19 million LUNA tokens until Oct. 4.

RavenCoin (RVN) gained 65.8% after the network hash rate reached 5.7 TH per second, the highest level since January 2022.

Cosmos (ATOM) gained 24.6% after Crypto research firm Delphi Digital shifted the focus of its research and development arm to the Cosmos ecosystem on Sept. 8.

Even with these gains, a single week of positive performance is not enough to interpret how professional traders are positioned. Those interested in tracking whales and market markers should analyze derivatives markets. Perpetual contracts, also known as inverse swaps, have an embedded rate usually charged every eight hours. Exchanges use this fee to avoid exchange risk imbalances.

A positive funding rate indicates that longs (buyers) are demanding more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative.

*Accumulated 7-day perpetual futures funding rate on Sept. 12. Source: Coinglass*

Perpetual contracts reflected a neutral sentiment as the accumulated funding rate was relatively flat in most cases. The only exceptions have been Ether (ETH) and Ether Classic (ETC), even though a 0.30% weekly cost to maintain a short (bear) position should not be deemed relevant. Moreover, those cases are likely related to the Ethereum Merge, the transition to a proof-of-stake network expected for Sept. 15.

The odds of a downtrend are still high

The positive 8.3% weekly performance can't be deemed a trend change considering the move was likely tied to the recovery in traditional markets. Furthermore, one could assume that investors are likely to price in the risk of additional regulatory impact after Gary Gensler’s remarks.

There is still uncertainty on potential macroeconomic triggers and traders are not likely to add risk ahead of important events like the FOMC interest rate decision. For this reason, bears have reason to believe that the prevailing longer-term descending formation will resume in the upcoming weeks.

Professional traders' lack of interest in leverage longs is evident in the neutral futures funding rate and this is another sign of negative sentiment from investors. If the crypto total market capitalization tests the bearish pattern support level at $940 million, traders should expect a 12.5% price drop from the current $1.08 billion level.

derivatives