Bitcoin and Ethereum have had a rough week, but derivatives data shows a glimmer of hope

This week, valuations in the cryptocurrency market fell sharply after leading US exchange Coinbase, Reported quarterly net loss of $430 million and South Korea announced plans to impose a 20% tax on crypto earnings.

At its worst, the total cryptocurrency market capitalization fell 39% from $1.81 trillion to $1.10 trillion in seven days, an impressive correction even for a more volatile asset class. The last time a valuation drop of a similar magnitude was seen was in February 2021, creating a bargain for risk-takers.

The total market capitalization of cryptocurrencies, in billions of dollars. Source: TradingView

Even with volatility this week, Bitcoin has seen some relief rally (bitcoin) rebounded 18% from lows of $25,400 to current levels of $30,000, while ether (Ethereum) prices also briefly rebounded to $2,100 after falling to a recent low of $1,700.

Institutional investors bought the dip, according to data from the Target Bitcoin ETF.Exchange-traded instruments are listed in Canada, and 6,903 BTC added on May 12marking the largest single-day buy ever.

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

“They pose the same risks that we have associated with bank runs for centuries.”

Total cryptocurrency market cap drops 19.8% in 7 days

The total market capitalization of all cryptocurrencies has shrunk by 19.8% in the past seven days and is now at $1.4 trillion. However, some mid-cap altcoins were wiped out and dropped more than 45% in a week.

Here are the biggest winners and losers of the 80 largest cryptocurrencies by market cap.

Weekly winners and losers in the top 80 coins.Source: Economics

maker(MKR) benefited from the demise of competing algorithmic stablecoins. While TerraUSD (UST) succumbed to the market downturn with its peg well below $1, Dai (Wear) remain fully functional.

Earth (Luna) After the foundation responsible for managing the ecosystem reserves was forced to sell its Bitcoin positions at a loss and issue trillions of dollars in LUNA tokens to cover its stablecoin falling below $1, the foundation faces an incredible $100 % crash.

Phantom (FTM) also faced a 15.3% drop in the total value locked in one day, the amount of FTM tokens deposited on ecosystem smart contracts. Fantom has struggled since prominent Fantom Foundation team members Andre Cronje and Anton Nell quit the project.

Tether premium shows declining demand from retail traders

OKX Tether (USDT) premium indirectly measures crypto demand from retail traders in China. It measures the difference between Chinese USDT peer-to-peer transactions and the official U.S. dollar currency.

Excessive buying demand pushes the indicator above 100% fair value. On the other hand, during a bearish market, Tether’s market quotes are flooded, resulting in discounts of 2% or more.

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

Currently, the Tether premium is 101.3%, which is slightly positive. Also, there has been no panic over the past two weeks. Considering the 19.8% drop in total cryptocurrency market capitalization over the past seven days, these figures suggest that retail demand in Asia has not subsided, which is bullish.

related: what happened? Terra debacle exposes flaws plaguing the crypto industry

Altcoin funding rates have also fallen to worrisome levels. Perpetual contracts (inverse swaps) have an embedded rate, usually charged every eight hours. These instruments are the derivatives of choice for retail investors because their prices tend to track the regular spot market perfectly.

Exchanges use this fee to avoid exchange risk imbalances. A positive funding rate indicates that bulls (buyers) need more leverage. However, when the shorts (sellers) need additional leverage, the opposite happens, causing the funding rate to go negative.

7-day cumulative perpetual contract funding rate. Source: Coinglass

Note that the accumulated 7-day funding rate is mostly negative. This data suggests that sellers (shorts) have higher leverage. For example, Solana’s (Sol), a weekly rate of minus 0.90% equals 3.7% per month, a considerable burden for traders holding futures positions.

However, the two leading cryptocurrencies are not facing the same leveraged selling pressure as measured by the cumulative funding rate. Typically, when excessive pessimism leads to imbalances, the ratio can easily dip below negative 3% per month.

The lack of leveraged shorts (sellers) in the Bitcoin and Ethereum futures markets and the modest bullishness among Asian retail traders should be interpreted as very healthy, especially after the weekly performance of -19.8%.

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