Bitcoin (BTC) suffered a 1-hour pullback of $1,420 on March 3 after Silvergate Bank’s stock crashed 57.7%, which was due to significant losses and “sub-optimal capitalization.” The US fintech-friendly bank has been a major provider of financial infrastructure for exchanges, institutional investors and mining companies, and some investors are concerned that its potential demise could have far-reaching negative consequences for the crypto sector.
The crypto-friendly bank shut down its digital asset payments railroad – Silvergate Exchange Network (SEN) – due to excessive risk. Silvergate also reportedly borrowed $3.6 billion from the US Federal Home Loan Banks System, a consortium of regional banks and lenders, to mitigate the effects of a wave of withdrawals.
One of the affected exchanges was Dubai-based Bybit, which announced the suspension of US dollar remittances after March 10. The move follows Binance’s international platform suspending US dollar fiat withdrawals and deposits on February 6.
Fiat entrances and exits have always been a tricky area due to the lack of clear regulations, especially in the US. Additional uncertainty arose from the March 3 Wall Street Journal report on iFinex, the holding company behind Tether and Bitfinex. Leaked documents and emails revealed that the group relied on false sales invoices and hid behind third parties to open bank accounts.
Despite a Wall Street Journal report claiming that Tether is under investigation by the Justice Department, (USDT) is still the absolute leading stablecoin with a market cap of $71.4 billion. The issue has spread industry-wide when Paxos, the issuer of the third-largest stablecoin, was ordered on February 13 by the New York Department of Financial Services to stop issuing Binance USD (BUSD).
Let’s take a look at Bitcoin derivatives statistics to better understand how professional traders fare in the current market conditions.
Derivatives metrics show buyers’ waning appetites
Traders should refer to the USD Coin (USDC) bounty to gauge cryptocurrency demand in Asia. The index measures the difference between China-based peer-to-peer stablecoin transactions and the US dollar.
Excessive demand for cryptocurrency purchases can push the indicator above fair value by 104%. On the other hand, the stablecoin market supply is flooded during bearish markets, causing a discount of 4% or more.
The USDC premium indicator in Asian markets has been slightly positive over the past three weeks, but is nowhere near the substantial 4% premium seen in early January. In addition, the statistic shows declining demand for stablecoin in Asia, which is down from 2.5% in the previous week.
Still, the current 1.5% premium should be interpreted as positive given the bearish news flow related to the crypto-fiat payment railroads.
Bitcoin quarterly futures are the instruments of choice for whales and arbitrage agencies. These fixed-month contracts usually trade at a small premium to spot markets, indicating that sellers are asking for more money to delay settlement longer.
Consequently, futures contracts should be trading at a 5% to 10% annualized premium in healthy markets – this situation is known as contango and is not exclusive to crypto markets.
The chart shows that traders abandoned any prospect of moving out of neutral-to-bearish territory on March 3 as the base indicator crossed the 5% threshold. However, the current 3% premium is lower than last week’s 4.5%, suggesting less investor optimism.
On the other hand, the 6.2% fall in the BTC price had an almost uneven impact on Bitcoin futures markets. Increased demand for bearish bets using leverage would have moved the base indicator into negative territory, known as backwardation.
Additional volatility is expected on March 14
In the week after Feb. 27, Bitcoin price lost 4.5%, indicating that investors are actually concerned about contamination from Silvergate Bank. Even as the crypto exchanges and stablecoin providers denied exposure to the troubled fintech, the shutdown of the fintech’s payment processing system has created uncertainty.
Analysts are now focused on the announcement of consumer price index (CPI) inflation data on March 14. Cointelegraph noted that CPI prints tend to generate short-term volatility in risky assets, though often short-lived in Bitcoin’s price movements.
Derivatives metrics currently point to limited pressure from the Silvergate Bank saga, but the odds are in favor of Bitcoin bears given declining demand for stablecoins in Asia and the BTC futures premium.
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This article does not contain any investment advice or recommendations. Every investment and trading move involves risk and readers should do their own research when making a decision.