Bitcoin is getting rid of its banking problems
Bitcoin continues its crack as Asia begins its business day.
The world’s largest digital asset by market cap recently surpassed $28,000 and is up 3% in the last 24 hours.
Remember how the demise of crypto-friendly banks was meant to choke crypto?
This tale didn’t last long. It turns out that after the book’s first chapter, in which Silvergate and Signature die, there is a systematic crisis of confidence in the global financial system that has reignited appetite for risky assets as trad-fi liquidity dries up – despite shaky fiat pipelines.
Things are a bit different in Asia.
Flowdesk Asia Pacific CEO David Bachelier points out that Singapore and the rest of Asia were not really affected by the collapse of Silicon Valley Bank and the rest of the US banking crisis, but it remains uncertain if banks will step in and try to fill in the gap.
“SVB has been a key player in providing financing and other services to high-growth companies that many Asian banks fail to provide,” he told CoinDesk in a note. “This represents a critical moment for the venture industry in Asia, with an opportunity to fill the gap left by the collapse of American players.”
Bachelier highlights that while there may not be an Asian SVB anytime soon, these banks are taking action and providing fiat pipelines for crypto.
“Coinbase’s recent announcement highlighting banking partnerships in Singapore is also interesting as it highlights an American company continuing to expand into the Asian region, indicating the comparatively minimal disruption in response to these banking crises,” he said.
The question, however, is how long will this rally last?
Joe DiPasquale, CEO of digital asset manager BitBull Capital, says Bitcoin is gearing up to test $30,000, but fundamentally there may be no support.
“From a technical perspective, the current price action is overheated and we could see a correction towards $25,000 in the short-term. The key market mover will most likely be FOMC in about 3 days, where the majority of analysts believe we will see a 25 basis point rise at best,” DiPasquale told CoinDesk via email.
The “flight to quality” of crypto investors
In the days following the shutdown of Silvergate Bank, the collapse of Silicon Valley Bank, and then Signature Bank, many concluded that the only place crypto prices could go was in a decline. But then the Fed intervened in the sector (just don’t call it a bailout) and Bitcoin seems to be on its way back to the moon, starting the week just above $28,000, making it 27% higher over the past week let.
While some, like former BitMEX CEO Arthur Hayes, have called BTFP a bigger stimulus measure for Bitcoin than Covid-induced quantitative easing, the reduced liquidity appears to be a knock-on effect.
Data from CryptoQuant suggests the market is as dry as it gets. Transfer volume, active addresses, and transactions are all down by double digits.
Crypto research firm Kaiko has been concerned about the lack of liquidity in order books since February.
“This is tremendous buying pressure in the markets,” Clara Medalie, director of research at Kaiko, said in a recent appearance on CoinDesk TV. “With markets not as liquid, any significant buying pressure is likely to have a significant impact on prices overall.”
However, the extent to which liquidity is an issue is up for debate.
BitMEX Acting CEO Stephan Lutz downplayed concerns in a recent interview with CoinDesk. “Bitcoin’s liquidity is still very solid and solid,” he said. “We haven’t seen people reduce their trading volume, but vice versa, which is probably because many of our loyal and large clients are bitcoiners.”
In a recent report the exchange released on Monday, BitMEX is playing out a scenario in which risk appetite recovers as the Fed targets inflation. But that was written before BTFP came into the picture.
“Even if you have another rate hike, [BTFP] just floods the market with liquidity again,” he said. “Quantitative easing is back in a different disguise.”
While Lutz points out that it would still be difficult to sell a large amount of Bitcoin without moving the market, sophisticated market participants do not and have algorithms in place to calculate how to split the order to close the deal , without affecting the price.
“If they really want to liquidate … that’s not a problem,” he said.
Lutz argues that Bitcoin’s recent surge is a “flight to quality,” almost parallel to what one would see in traditional markets during a time of crisis.
“You see stablecoin fear. People are going out of the stables and back into bitcoin,” Lutz said, noting that the latest trading patterns he has seen involve creating synthetic US dollar-equivalent positions in derivatives markets via shorts.
The BitMex clientele – Bitcoiners at heart – would rather bet on altcoins than US dollar stablecoins.
Liquidity doesn’t just refer to the market’s ability to absorb moves back and forth in bitcoin. It’s also about fiat-to-crypto pipes.
Lutz said that BitMex has not been affected by the recent US tech and crypto banking crisis, largely because BitMex is not based in the US and does not offer fiat ramps.
But that’s to be expected given that the exchange has always been separate from the fiat system — a strategy that has avoided the liquidity panic that has been used to curse some of its peers.
Former Silicon Valley Bank parent SVB Financial Group (SIVB) filed for Chapter 11 bankruptcy protection in the US Bankruptcy Court for the Southern District of New York on Friday. Former New York State Department of Financial Services Superintendent Maria Vullo shared her reaction. Regardless, Bitcoin (BTC) is flirting with $27,000. Coinbase Institutional Head of Research David Duong shares his analysis of the crypto markets.
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