The total market capitalization of cryptocurrencies has been in a downward trend for the past eight weeks, reaching its lowest level in over two months at $1.06 trillion. The decline was mainly driven by several altcoins that plunged over 15%, including BNB, Cardano, Solana, Polygon, and Polkadot. This article explores the current market situation and what it means for investors.

Bearish Trend Formation

The downtrend that started in mid-April has tested the support level multiple times, indicating that breaking out to the upside would require extra effort from the bulls. Although Bitcoin gained 0.8% during the seven-day period, the negative pressure came from a handful of altcoins. The United States Securities and Exchange Commission (SEC) filed separate lawsuits against crypto exchanges Binance and Coinbase, tagging multiple altcoins as securities. Despite the worsening crypto regulatory environment, two derivatives metrics indicate that bulls are not yet giving up.

Derivatives Metrics

Perpetual contracts or inverse swaps have an embedded rate that is usually charged every eight hours. A positive funding rate indicates that longs (buyers) demand more leverage, while the opposite occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative. The seven-day funding rate for BTC and ETH was neutral, indicating balanced demand from leveraged longs and shorts using perpetual futures contracts. Curiously, BNB, SOL, and ADA displayed no excessive short demand after a 15% or higher weekly price decline, suggesting that bulls are still holding their positions.

Stablecoin Markets

The 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 2% or higher discount. Currently, the Tether premium on OKX stands at 99.8%, indicating a balanced demand from retail investors. Consequently, the indicator shows resilience considering the cryptocurrency markets dropped 17.7% over the last eight weeks to $1.06 trillion from $1.29 trillion.

Despite the resilience in derivatives and stablecoin metrics, it is unclear whether the market will be able to break from the bearish trend. Moreover, there is no apparent rationale for bulls to place bets on a V-shaped recovery, given the uncertainty in the regulatory environment. Ultimately, bears are in a comfortable place despite the balanced demand from leveraged longs and shorts using perpetual futures contracts and the Tether premium. Investors should be cautious and monitor the market situation closely in the coming weeks.

Analysis

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