This week the crypto market is fluctuating at high levels, and the ALPACA incident highlights the risks of low market capitalization tokens.

This week, the Crypto Assets market is showing signs of high-level fluctuation, with Bitcoin prices fluctuating between $93,500 and $95,500. Some small market capitalization Tokens, such as those in the SUI ecosystem, Virtual ecosystem, and AI-related Tokens, have performed well. The overall market is still awaiting key economic data this week, such as the unemployment rate and non-farm payroll data, to determine the trend.

The crypto market has recently shown a complex situation, with both regulatory challenges and market manipulation behaviors. The ALPACA incident revealed how some speculators profit by utilizing low market capitalization token contracts, creating short squeezes and collecting funding rates, highlighting the speculative risks in the market. Meanwhile, the U.S. policy environment is developing in a direction favorable to crypto assets, with Arizona's passage of the "Strategic Bitcoin Reserve Act" marking an acceleration in the mainstreaming of cryptocurrencies.

ALPACA Incident Analysis:

ALPACA is a decentralized financial protocol on the Binance Smart Chain. After Binance announced it would delist the ALPACA Token on May 2, its price experienced an abnormal surge, increasing nearly 10 times within a week, rising from $0.02893 to a peak. This phenomenon reflects the existence of market manipulation.

Analysis suggests that the manipulator's strategy may include:

1. Control the price at a high level to complete the futures delivery before delisting.
2. Create a false collapse to attract short selling, then pump to harvest the shorts.
3. Gradually sell off after delivery to cash out

In this process, short positions became the "fuel" that drove the price up. Due to the expectation that delisting would lead to a price drop, many investors established short positions, resulting in a significantly negative funding rate. Manipulators took advantage of this situation by buying spot to drive up the price, while simultaneously earning funding rate profits from the shorts, creating a positive feedback loop.

Binance has shortened the funding rate settlement period to 1 hour, further increasing the pressure on shorts and accelerating the price increase.

For investors, it is advisable to focus on tokens with a market capitalization below 100 million USD, observing their open interest (OI) and changes in funding rates. A significant increase in OI and a positive funding rate may indicate that large funds are going long; however, an increase in OI with a negative funding rate should raise caution about potential short-squeeze actions.

Policy and regulation aspects:

1. The U.S. SEC has postponed the approval decisions for several spot Crypto Assets ETFs, including Franklin's SOL and XRP ETFs. Approval is expected to be completed by June 2025. Market analysis agencies are optimistic about the approval of most Crypto Assets ETFs.

2. The Arizona state legislature has passed the "Strategic Bitcoin Reserve Act," allowing the state treasury and pension system to invest up to 10% of their funds in Bitcoin. This marks a shift of Crypto Assets towards mainstream financial assets and may trigger similar actions from other states. However, the bill still requires the governor's signature to take effect, and the current governor has a high tendency to veto.

Regardless of whether the bill is ultimately passed, multiple states in the United States have proposed similar Bitcoin reserve bills, reflecting the trend of Crypto Assets reserves spreading nationwide. There are also related proposals at the federal level, such as the plan proposed by Senator Lummis to purchase 1 million Bitcoins as a strategic reserve within five years. Although it may be difficult to implement in the short term, the trend of Crypto Assets reserves has already taken shape in the long term.