On March 12, Bitcoin futures traded 5.5% below regular spot exchanges, causing volatility in the derivatives market.
The price of Bitcoin
rose 14.4% between March 12 and 13 after financial regulators confirmed that they had bailed out Silicon Valley Bank (SVB) depositors from bankruptcy. The intraday high of $24,610 may not last long, but $24,000 is up 45% this year.
On March 12, US Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell and Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg issued a joint statement to reassure SVB depositors.
Regulators also announced a systemic risk exception for Signature Bank ( SBNY ), an intervention intended to compensate depositors for losses suffered under previous management. Signature Bank is one of the most prominent financial institutions serving the cryptocurrency industry, along with Silvergate Bank, which announced its voluntary liquidation last week.
To avoid a larger crisis, the Fed and Treasury devised an emergency program to supplement all Signature Bank and Silicon Valley Bank deposits with funds from the Fed’s Emergency Lending Authority. According to a joint statement by regulators, “no loss was borne by the taxpayer,” although the strategy for deploying the treasury instruments was questioned.
Stablecoin is a USD currency
About the USDC
there was also a major upheaval in the cryptocurrency industry after it fell 1:1 against the US dollar on March 10, with fears growing after the issuer management company, Circle, confirmed it had $3.3 billion in reserves at Silicon Valley Bank.
Such unusual moves caused price distortions among exchanges, prompting Binance and Coinbase to discontinue automatic USDC stablecoin conversion. The decoupling from $1 reached nearly $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 are headed toward extreme fear
Quarterly Bitcoin futures are popular among whales and arbitrage cadres. These fixed-month contracts typically trade at a slight premium to the spot markets, indicating that sellers are asking for more money by delaying settlement for longer.
As a result, futures contracts in healthy markets must be traded at annual premiums of 5-10% – a situation known as contango, which is not unique to the crypto market.
The chart shows that as of March 10 traders were neutral-bearish as the base index fluctuated between 2.5% and 5%. However, the situation quickly changed in the hours of March 11, as the USDC stablecoin was divested and cryptocurrency exchanges were forced to change their exchange mechanisms.
As a result, the three-month Bitcoin futures premium becomes a discount, also known as arrears. Such moves are unusual and reflect investor distrust of intermediaries or extreme pessimism about the underlying asset. Although the USDC stablecoin price is nearing $0.995, the current 0% premium indicates a lack of demand for leveraged Bitcoin via futures.
Related: Crypto Investment Products Sees Largest Exit on Record Amid SVB Fall
Crypto-fiat gateways are key to regaining better market dynamics
Recovering its $24,000 support, Bitcoin has rebounded to levels not seen since Silvergate Bank’s share price plummeted on March 1 due to a delay in filing its annual financial report by $10,000. Moreover, crypto exchanges and stablecoin providers were forced to suspend US dollar deposits, and the closure of Signature Bank affected Okcoin.
Banking options for crypto companies, including exchanges, are likely to be more limited as traditional banks remain cautious about the sector. Some analysts say US regulators are deliberately discouraging big banks from doing business with cryptocurrency exchanges.
Fiat gateway on and off ramp is critical for stablecoins, market markers and cryptocurrency exchanges for many reasons. The ability to convert Bitcoin into cash is critical 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 stay afloat.