The Silicon Valley Bank crisis and resulting volatility in the world’s second largest dollar-pegged stablecoin, USD Coin (USDC), has seen Bitcoin (BTC) trade at relatively higher prices on crypto exchange Coinbase (COIN). .
Data collected by analytics firm CryptoQuant shows that Bitcoin’s Coinbase Premium Index – which is the spread between the US dollar-denominated price (BTC/USD) of BTC on US-based Coinbase and the Tether-denominated price (BTC/USDT) by BTC on offshore giant Binance – has risen to 0.8, the highest since March 2020.
Bitcoin trading at a premium on Coinbase is often seen as a sign of increased buying pressure from government institutions and veteran traders.
This time around, however, the premium likely represents USDC’s rebate or flight. Bitcoin’s price on Coinbase has become sensitive to USDC volatility since the exchange merged its order book — consisting of USDC as the base currency — with the USD order book in July of last year has (users can deposit USDC on Coinbase, but it will enter the order book as USD).
The argument that Bitcoin’s current dollar price on Coinbase is due to the USDC discount is supported by the fact that the BTC/USDT pair on Coinbase is trading pretty much in line with prices on other offshore exchanges.
“Because USDC is trading below its rate, BTC appears more expensive on Coinbase,” pseudonymous DeFi researcher Ignas told CoinDesk. “As such, the spot market for BTC needs to be adjusted to reflect the current USDC price.”
USDC fell as low as $0.90 late Friday, deviating from its 1:1 dollar peg after its issuer, Circle Internet Financial, confirmed it held $3.3 billion in cash at the troubled Silicon Valley bank . The news triggered a rotation of funds out of USDC and into other assets, with Circle processing more than $1 billion in net redemptions. At press time, USDC had risen to around $0.95.
Bitcoin had rallied to $21,100 at press time from a low of around $19,600 set on Friday.
“When word broke that Circle’s funds were stuck in Silicon Valley Bank, users rushed to exchange their USDC for USD,” Ignas said. “On Coinbase, users were able to redeem 1 USDC for $1.00, but Coinbase has suspended conversions over the weekend when banks are closed, making the situation worse and leaving traders no choice but to liquidate their holdings in the spot market .”
“There is no USDC market on Coinbase,” Ignas added. “So the BTC/USD market is effectively acting as a BTC/USDC market.”
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