Bitcoin is trading below $20,000 for the first time in nearly two months, following the latest budget from US President Joe Biden, the collapse of Silvergate Bank and Silicon Valley Bank.
The price of BTC dipped to $19,945 on March 10. Bitcoin had a stellar start to 2023 but fell as much as 5% in an hour on March 3 amid uncertainty at Silvergate.
The price doesn’t appear to have been able to lift since, as further downturn is weighing on the price as the U.S. banking sector is having an indirect adverse effect on the market, with many comparing the current insolvency of certain banks in the U.S. to the banking crash of 2008.
SVB is the focus of today’s market turmoil as it is the United States’ 16th largest commercial lender and the second U.S. bank in a week to suffer from insolvency and liquidity crisis.
This has ultimately seen the cryptocurrency marketplace lose its trillion-dollar status, with its current market capitalization currently standing at $940 billion. In addition, the market has seen over 200 million in liquidation as investors are taking a flight to safe-haven assets.
What You Should Know: Bitcoin saw further downside before the opening of the U.S. markets on Friday, as embattled SVB Financial saw another 60% wiped off its stock price. In a move that mimicked crypto exchange banking partner Silvergate, SVB also began to spark knock-on effects for non-United States banks on the day.
In the past 24 hours, 66,264 traders were liquidated, and the total liquidations come to over $205 million according to data from CoinGlass. The largest single liquidation order happened on the OKX cryptocurrency exchange valued at $1.63 million.
Silicon Valley Bank possessed more than $200 billion in assets and provided financial services to some crypto-focused venture firms, including Andreessen Horowitz and Sequoia Capital.
Don’t forget, however, the ongoing efforts of the U.S. Federal Reserve to curb inflation, which include increasing interest rates above 2% in August 2022 and reducing its balance sheet through asset sales. In addition to this, U.S. labour market data released on March 10 revealed the creation of 311,000 jobs in February 2023, supporting the notion that the Fed’s anti-stimulus measures require additional firepower.
The unexpected result of the central bank’s cautious stance is a greater likelihood of a longer and more severe economic downturn. Investors demanded a higher return for two-year treasury notes versus longer-term dated bonds, causing the inverted bond curve to reach its highest level in 40 years.
A notable bounce occurred as total crypto capitalization reached as low as $920 billion, indicating large buyers around that level, which may appear insignificant at first but is critical for Bitcoin, the leading cryptocurrency. To begin, one must understand that Bitcoin accounts for roughly half of the total crypto capitalization when stablecoins are excluded.
Traders can gauge the market’s overall sentiment by measuring whether more activity is going through call (buy) options or put (sell) options. Generally speaking, call options are used for bullish strategies, whereas put options are for bearish ones. A put-to-call ratio of 0.70 indicates that put option open interest lags behind the more call options and is therefore bullish. In contrast, a 1.40 indicator favours put options, which is a bearish sign.
Since March 8th, protective puts have been in greater demand, indicating derivatives traders’ risk aversion. Aside from a brief overshoot on March 9 when the put-to-call ratio jumped above 1.50, nothing was out of the ordinary as the movement coincided with the Bitcoin price falling below $22,000.
The gap favouring the put options risk metric had been narrowing, indicating that even professional traders were finding themselves shorthanded as the crypto market continued to fall to new lows.
More importantly, the Bitcoin options market shows no signs of stress, which is encouraging given the immense pressure from the banking sector and the prospects of a dwindling economy.
What Market Participants are Saying: Michaël van de Poppe, founder and CEO of trading firm Eight, explained that the writing was on the wall. He explained, “First it was Silvergate, then Silicon Valley Bank and now First Republic Bank. All sinking massively on the markets. It’s 2008 all over again.”
With that, U.S. equities started the March 10 session in the red as nervous traders waited to see the full extent of the SVB contagion, and sadly, the market ended the trading day and week in the red zone.
Trader and analyst Scott Melker stated, “Both Silvergate and Silicon Valley seemingly invested in low yield treasuries before the Fed tightening cycle… treasuries that nobody would want to buy now with ‘risk-free’ treasuries at 5% directly from the government.” He further stated, “They were forced to sell at a steep discount, taking on massive losses.
This further shakes the market faith, causes more withdrawals and leads to insolvency,” adding that the setup was a “slippery slope.”
In terms of BTC price action, van de Poppe, meanwhile, eyed levels as low as $18,000 for a potential long entry. Above $20,000, on the other hand, was now a short opportunity. He stated, “Levels I’d be looking at with #Bitcoin: Potential shorts around $20.6K and/or $21.4K. Potential longs at $18.1-18.6K including the bull. divs and/or HL confirmation.”
A silver lining came in the form of what markets commentator Holger Zschaepitz described as “mixed” U.S. jobs data, helping allay fears of a significant policy shift by the Federal Reserve.
Popular analytics account “Tedtalksmacro” stated on Twitter “Traders are now pricing in a 25bps hike from the Fed in March following today’s jobs data. Previously, 50bps was priced,”, also calling the data a “mixed bag.” Data from CME Group’s FedWatch Tool confirmed the switch-around in market expectations for the upcoming Federal Open Market Committee (FOMC) meeting due March 22.
For some, however, the extent of the SVB crisis was reason to believe that the Fed would have no choice but to abandon its monetary tightening and “pivot” on interest rate hikes.
Crypto entrepreneur David Bailey reacted by stating, “SVB dealing with a full-blown run on the bank. The bad news is this is going to accelerate very quickly into a systemic crisis.” He added, “The good news is the Fed will have no choice but to pivot imminently or risk imploding the entire financial system.”
Leave a Reply