BTC/ETH prices per CoinDesk Indices, as of 7 a.m. ET (11 a.m. UTC)
Bitcoin breaks free of its banking troubles
Good morning, Asia.
Bitcoin is continuing its tear as Asia begins its business day.
The world’s largest digital asset by market capitalization recently pushed past $28,000, gaining 3% in the last 24 hours.
Remember how the decline of crypto-friendly banks was supposed to smother crypto?
That narrative didn’t last long. Turns out that after the first chapter of the book, where Silvergate and Signature die, there’s a systematic crisis of confidence in the global financial system, which has rekindled an appetite for risk assets as traditional finance (TradFi) liquidity dries up – despite shaky fiat pipelines.
In Asia, things are slightly different.
David Bachelier, Asia-Pacific CEO of Flowdesk, points out that Singapore and the rest of Asia weren't really affected by the collapse of Silicon Valley Bank (SVB) and the rest of the U.S. banking crisis, but it remains uncertain if banks are going to step in and try and fill the gap.
“SVB was a key player in providing funding and other services to high-growth companies that many Asian banks do not offer,” he told CoinDesk in a note. “This presents a critical moment for the venture industry in Asia, with an opportunity to fill the gap left by the collapse of American players."
Bachelier said that while there might not be an Asian SVB anytime soon, one thing these banks are doing is stepping up and providing fiat pipelines for crypto.
“The recent announcement from Coinbase highlighting banking partnerships in Singapore is also interesting to note as it highlights an American company expanding further into the Asian region, suggesting the comparatively minimal disruption in response to these banking crises,” he said.
The question is, though, how long will this rally last?
Joe DiPasquale, CEO of digital asset manager BitBull Capital, said bitcoin is preparing to test $30,000, but, fundamentally, support might not be there.
“From a technical aspect, the current price action is overheated and we could see a correction toward $25K in the near term. The major market mover will most likely be [the Federal Reserve's Federal Open Market Committee meeting], in about [three] days, where the majority of the analysts believe we will see a 25 [basis point interest rate] hike at best,” DiPasquale told CoinDesk in via email.
In the days following the shutdown of Silvergate bank, the collapse of Silicon Valley Bank and then Signature Bank, many concluded the only place crypto prices could go was down. But then the Fed intervened in the sector (just don’t call it a bailout) and bitcoin looks to be heading back toward the moon, starting the week just over $28,000, which puts it up 27% over the last week.
While some, like former BitMEX CEO Arthur Hayes, have called BTFP a larger stimulus measure for bitcoin than COVID-19-induced quantitative easing, reduced liquidity appears to be a knock-on effect.
Data from CryptoQuant would suggest that the market is as dry as it gets. Transfer volume, active addresses and transactions are all down by double digits.
(CryptoQuant)
Crypto research firm Kaiko has been concerned about the lack of liquidity in order books since February.
“This is a huge amount of buy pressure on the markets,” Kaiko Director of Research Clara Medalie said during a recent appearance on CoinDesk TV. “As the markets aren’t that liquid, any significant buying pressure is likely going to have a considerable impact on prices as a whole.”
The extent to which liquidity is a problem is up for debate, however.
BitMEX Acting CEO Stephan Lutz downplayed concerns in a recent interview with CoinDesk. “Bitcoin’s liquidity is still very solid and sound,” he said. “We haven't seen people reducing their trading volumes, just the other way around, which is probably due to the fact that many of our loyal and big customers are bitcoiners.”
In a recent report the exchange released Monday, BitMEX plays out a scenario where risk appetite recovers as the Fed pivots on inflation. But this was written before BTFP came into the picture.
“Even if you have another hike of interest rates, [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 quantity of bitcoin without moving the market, sophisticated market players don’t do this and have algorithms to calculate how to split up the order to close the deal without impacting price.
“If they really want to liquidate … it’s not an issue,” he said.
Lutz argues that bitcoin’s recent surge is a “flight to quality,” almost parallel to what you would see in traditional markets during a time of crisis.
“You see stablecoin angst. People are going out of stables and back into bitcoin,” Lutz said, highlighting that the most recent patterns of trades he’s seen involve creating synthetic U.S. dollar equivalent positions in derivatives markets via shorts.
The BitMex clientele – bitcoiners at heart – would rather go into altcoins instead of U.S. dollar stablecoins.
Liquidity doesn’t just refer to the ability of the market to absorb moves back and forth into bitcoin. It’s also about fiat-to-crypto pipes.
Lutz said BitMex wasn’t impacted by the recent U.S. tech and crypto banking crisis, largely because BitMex isn’t in the U.S. and it doesn’t offer fiat on-ramps.
But this was expected, really, as the exchange has always been disconnected from the fiat system – a strategy that has avoided the panic over liquidity some of its competitors were cursed with.
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