Bitcoin (BTC) price surged 14.4% between March 12 and 13 after it was confirmed that financial regulators had bailed out depositors in the insolvent Silicon Valley Bank (SVB). The intraday high of $24,610 may not have lasted long, but $24,000 marks a 45% year-to-date increase.
On March 12, US Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and Federal Deposit Insurance Corporation (FDIC) Chair Martin Gruenberg issued a joint statement to reassure SVB depositors.
Regulators also announced a systemic risk exemption for Signature Bank (SBNY), an intervention aimed at compensating depositors for losses incurred by previous management. Signature Bank was one of the most prominent financial institutions in the cryptocurrency industry alongside Silvergate Bank, which announced its voluntary liquidation last week.
To avert a major crisis, the Fed and Treasury have developed an emergency program to match all deposits at Signature Bank and Silicon Valley Bank with funds from the Fed’s Bailout Agency. According to the regulators’ joint statement, “no losses will be borne by the taxpayer” although the strategy for deploying Treasury assets is questionable.
Stablecoin USD Coin (USDC) also caused significant turmoil in the cryptocurrency industry after falling below its 1:1 peg to the US dollar on March 10. Fear grew after issuing management company Circle confirmed $3.3 billion in reserves were held at Silicon Talbank.
Such an unusual movement caused price distortions on the exchanges and prompted Binance and Coinbase to disable automatic conversion of the USDC stablecoin. The $1 decoupled bottomed near $0.87 in the early hours of March 11 and recovered to $0.98 after the FDIC’s successful intervention in the SVB crisis was confirmed.
Let’s take a look at Bitcoin derivatives metrics to see where professional traders stand in the current market.
Bitcoin futures metrics turned into extreme fear
Quarterly bitcoin futures are popular with whales and arbitrage desks. These fixed-month contracts typically trade at a slight premium to spot markets, suggesting sellers are asking for more money to delay settlement for a longer period of time.
As a result, futures contracts in healthy markets should trade at an annual premium of 5% to 10% — a situation known as contango, which isn’t unique to crypto markets.
Bitcoin 3 month futures annualized premium. Source: Laevitas.ch
The chart shows that traders were neutral to bearish until March 10th when the basic indicator fluctuated between 2.5% and 5%. However, the situation quickly changed in the early hours of March 11 when stablecoin USDC decoupled and cryptocurrency exchanges were forced to change their conversion mechanisms.
Consequently, the Bitcoin three-month futures premium turned into a discount, also known as backwardation. Such a move is highly unusual and reflects investors’ lack of trust in intermediaries or extreme pessimism about the underlying asset. Even as the USDC stablecoin price approaches $0.995, the current 0% premium suggests a lack of leverage buying demand for Bitcoin via futures instruments.
Related: Crypto investment products see biggest outflows ever amid SVB collapse
Crypto-fiat gateways are key to regaining improved market momentum
By reclaiming $24,000 support, Bitcoin has restored levels not seen since Silvergate Bank’s share price collapsed on March 1 following the late filing of its annual 10K financial report. Additionally, crypto exchanges and stablecoin providers have been forced to suspend US dollar deposits, with the signature bank shutdown affecting Okcoin.
Banking options for crypto firms, including exchanges, are likely to become more limited as traditional banks remain wary of the sector. According to some analysts, US regulators are deliberately blocking major banks from doing business with cryptocurrency exchanges.
Entry and exit ramps for fiat gateways are critical to stablecoins, market tokens, and cryptocurrency exchanges for a variety of reasons. The ability to convert bitcoin into cash and vice versa is vital to their day-to-day operations. So the longer it takes to find new banking partners, the harder it is for stablecoins to allow redemptions and exchanges to maintain high levels of liquidity.
Derivatives metrics may have recovered from the initial risk of contagion from the banking crisis, but they still hint at bitcoin bulls’ lack of confidence in a long-term recovery.
The views, thoughts, and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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