Derivatives data highlights positive cryptocurrency traders sentiment and belief in more upside

The recent weakness in the crypto market did not invalidate the six-week upward trend, even after a failed test of the upper band of the channel on Feb. Total crypto market capitalization remains above the $1 trillion psychological mark and, more importantly, cautiously bullish after a fresh round of negative comments from regulators.

Total cryptocurrency market capitalization in USD, 12 hours. Source: TradingView

As shown above, the ascending channel initiated in mid-January has room for a further 3.5% correction to $1.025 trillion in market capitalization while still holding the bullish formation.

This is excellent news considering the FUD – fear, uncertainty and doubt – shot down by regulators regarding the cryptocurrency industry.

Recent examples of bad news are a US District Court judge’s ruling that emojis such as the rocket, stock graph and money bags infer “a financial return on investment,” according to a recent court filing. On February 22, a federal court judge who decided a case against Dapper Labs denied a motion to dismiss the complaint, claiming that their NBA highlights violated safety laws by using such emojis to denote profit.

Outside the US, on February 23, the International Monetary Fund (IMF) issued guidance on how countries should treat crypto assets, strongly advising against granting Bitcoin legal status. The document stated: “While the purported potential benefits of crypto assets have yet to materialize, significant risks have arisen.”

IMF directors added that “widespread adoption of crypto assets could undermine the effectiveness of monetary policy, circumvent capital flow management measures, and exacerbate fiscal risks.” In short, these policy guidelines created additional FUD that caused investors to rethink their exposure to the cryptocurrency sector.

The 5.5% weekly decline in total market capitalization since Feb 20 was driven by Bitcoin (BTC) price loss of 6.3% and Ether (ETH) of 4.6%. Consequently, the correction in altcoins was even more robust, with 9 of the top 80 cryptocurrencies down 15% or more in 7 days.

Weekly winners and losers among the top 80 currencies. Source: Messari

Stacks (STX) gained 53% after the project announced its v2.1 update to strengthen the connection with native Bitcoin assets and improve control of its smart contracts.

Optimism (OP) surged 13% as the protocol released details of its upcoming superchain network, which focuses on interoperability between blockchains.

Curve (CRV) dropped 21% after an Ethereum security analytics firm suggested implementing verkle trees, which could severely impact the use of Curve Finance on the mainnet, according to to your team.

Leverage demand is balanced despite price correction

Perpetual contracts, also known as reverse swaps, have a built-in fee that is typically charged every eight hours. Exchanges use this rate to avoid currency risk imbalances.

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

Perpetual futures 7-day cumulative funding rate on Feb 27. Source: Coinglass

The 7-day funding rate was marginally positive for both Bitcoin and Ethereum, hence a balanced demand between leveraged longs (buyers) and shorts (sellers). The only exception was the slightly higher demand for bets against the BNB price, although this is not significant.

The put/call ratio remains bullish

Traders can gauge overall market sentiment by measuring whether more activity is going through calls (buy) or puts (puts). Generally speaking, call options are used for bullish strategies, while puts are used for bearish ones.

A put-to-call ratio of 0.70 indicates that open puts lag behind the most bullish calls and are therefore positive. In contrast, an indicator of 1.40 favors puts, which can be considered bearish.

Related: ‘Liquidity’ was the biggest hit to Bitcoin’s price last year, according to trader Brian Krogsgard

BTC options volume put-to-call ratio. Source:

Except for a brief moment on Feb 25 when Bitcoin price dropped to $22,750, the demand for bullish calls has exceeded the bearish neutral puts since Feb 14th.

The current 0.65 Buy-to-Buy volume ratio shows that the Bitcoin options market is more heavily populated by neutral-to-bull strategies, favoring call (buy) options by 58%.

From a derivatives market perspective, the bulls are less likely to fear the recent 5.5% decline in total market capitalization. There is little federal judges or the IMF can do to seriously undermine investors’ belief that they can benefit from cryptocurrencies’ decentralized protocols and censorship-resistant abilities. Ultimately, derivatives markets showed resilience, paving the way for further gains.