Bitcoin prices surged above $22,000 to start the new week as the Federal Reserve (Fed) injected liquidity into the U.S. economy. As a result, the BTC/USD trading pair is up 15% from its lowest level in the past two months.
The volatility came from events that followed the collapse of one U.S. bank and the forced closure of another. Silicon Valley Bank (SVB) and Signature Bank are the latest casualties of financial institutions in a brutal year of rate hikes by the Federal Reserve. Will this trend continue?
While the Signature Bank is focused on cryptocurrencies and is a big step forward for fiat currencies, so far there is no reason for the crypto market to give up its optimism about the prospect of the Fed’s new product. Not everyone thinks this will constitute a “pivot” for rate hikes or overall policy.
As things continue to stabilize and ongoing events keep pouring into the news, we analyze the key factors that are causing Bitcoin price to fluctuate in the short-term.
Fed bails out Silicon Valley bank depositors
Of course, the current story is the collapse of Silicon Valley Bank (SVB) on March 10, swallowing up hundreds of billions of dollars in deposits, and SVB being forced to take a whopping $1.8 billion in losses on mortgage-backed securities on consumer deposits, Its price is also affected during times when the Federal Reserve raises interest rates.
At present, many people have tried to withdraw money from SVB and have been forced to sell their assets at a loss. The result comes from the Federal Reserve intervening to support savers’ money. On March 12, they announced the Bank Term Financing Program (BTFP).
“Depositors will begin accessing all their funds on Monday, March 13,” the U.S. Treasury, the Fed’s board and the deposit insurance company said in a joint statement, confirming the Federal Deposit Insurance Corporation (FDIC). “Taxpayers have nothing to lose from the SVB settlement.”
As market commentators were quick to point out, the decision effectively marks the Fed’s return to liquidity injections – quantitative easing (QE) – which had previously been withdrawn from the US economic platform. As soon as the news came out, risky assets immediately rose, because the increase in liquidity will eventually increase investors’ risk appetite.
Cryptocurrencies are no exception, despite the sudden announcement by U.S. authorities to close Signature Bank — a move that some see as a direct attempt to prevent the crypto market from taking advantage of the fallout from SVB.
“We also announced a similar systemic risk exception for Signature Bank of New York, which was closed today by state regulators. All depositors at the institution will be charged in full. Like the Silicon Valley Bank settlement, taxpayers will suffer no losses,” the joint statement read.
Popular commentator Tedtalksmacro described the creation of BTFP as a form of “stealth QE”. “Quantitative easing will officially begin on Monday. This is optimistic,” added part of a subsequent Twitter post. “Summary: The Fed’s balance sheet will expand, which will increase dollar liquidity.”
In general, cryptocurrencies are very sensitive to central bank liquidity trends — and not just in the US. One of the people who brings this up often is Arthur Hayes, former CEO of derivatives exchange BitMEX. He described how changing liquidity conditions could affect the performance of bitcoin and altcoins. Now, he’s clearly optimistic.
Speculation focuses on Fed rate hike
With liquidity returning to the market, it’s not just cryptocurrencies that are wondering about the fate of the Fed’s quantitative tightening (QT) policy implemented over the past 18 months. Speculation is rampant on the day a rate-adjustment decision is made, which could result in a rate cut, or that the Fed will leave rates on hold.
Before that, markets were trading between 0.25% and 0.5% of the benchmark interest rate at the March 22 Federal Open Market Committee (FOMC) meeting. “Due to stress in the banking system, we no longer expect the FOMC to raise rates at its next meeting on March 22,” Goldman Sachs economist Jan Hatzius wrote in a December March report.
Bloomberg TV Chief Markets Editor David Ingles explained the comments as Goldman Sachs sees the consumer price index (CPI) as an “unusual event.”
Cointelegraph analyst Michaël van de Poppe, founder and CEO of trading firm Eight, highlighted that next week will yield another price catalyst in the form of CPI inflation data for February.
According to cryptocurrency analyst Daan Crypto, the market is currently waiting for the green light from the CPI. If CPI goes higher, we’re going to see some confusion because we basically have CPI going up + Fed easing. If the CPI is lower than expected, we see no reason for the market to back down. The market’s initial reaction to the banking crisis was based on the Fed’s pivot. But it might be a mistake…
Overall expectations remain in favor of more gains on the benchmark interest rate, which stalled on March 22, according to the CME Group’s FedWatch Instrument. Still, 0.5% is undisputed.
Fed Target Rate Probability Map | Source: CME Group
BTC Price Rebounds to $22,700
Therefore, the Bitcoin price was clearly bullish during the Asian session on March 13. The BTC/USD pair was trading around $22,100 at press time after hitting a local high of $22,775 on Bitstamp ahead of the Wall Street open. Much of the rally from the March 10 lows below $20,000 came after the Fed’s liquidity announcement, but that completely erased any trace of the SVB blowing up.
BTC/USD 1-hour candlestick chart (Bitstamp) | Source: TradingView
“Bitcoin prices have recovered from the biggest U.S. bank crash since 2008…in just 3 days,” noted a prominent Bitcoin Archives commentator.
For traders, the targets are still shifting as volatility sends the BTC/USD pair up and down ahead of the open.
Van de Poppe thinks $21,300 must be held to facilitate a long-term trade, possibly $23,700. “Liquidity at $22,700 looks ripe for action,” said cryptocurrency trader Crypto Chase.
“IMO a stop below $21,000 is safe for any local buys. It doesn’t make sense for me to get back down if it continues to be ripped,” said Jackis, a full-time trader who compared last week’s lows with The 0.618 Fibonacci retracement level matches exactly with the 0.618 Fibonacci retracement level. Over $25,000 in 2023.
Credible Crypto added to the current price action on the 4-hour time frame: “It is not surprising that we have pulled back major monthly support.” As a result, Bitcoin closed the week well above expectations, above $22,000. For trader and analyst Rekt Capital, this “could” impact the previous bearish double top pattern on the weekly time frame.
“A weekly close above $21,770 has the potential to invalidate the double top,” he said. However, further analysis shows that April is the closest point at which Bitcoin could begin a long-term trend change.
As long as the $20,000 level holds, BTC has a chance to challenge the macro downtrend again in the coming weeks. Back in April of this year, Rekt Capital had said.
Annotated chart BTC/USD | Source: Rekt Capital/Twitter
USDC looks set to retrace $1
One of the things that gave investors a sigh of relief this week was the SVB explosion on March 13th. USDC, the second largest stablecoin by market capitalization, is actually making a comeback. Rates are fixed in USD at the time of writing.
USDC was trading at $0.99 on Bitstamp after a 20 percent drop, as assurances from issuer Circle helped quell existing panic.
USDC/USD 1-hour candlestick chart (Bitstamp) | Source: TradingView
In a March 12 Twitter thread, CEO Jeremy Allaire confirmed that BNY Mellon and an unnamed new bank partner would succeed Signature and SVB’s abrupt departures. “The reliability, security, and 1:1 convertibility of all USDC in circulation is of paramount importance to Circle, even in the face of banking impacts impacting the cryptocurrency market,” he added in a release , praised the Fed and U.S. lawmakers.
The largest U.S. exchange, Coinbase, has confirmed that USDC conversions will begin on March 13. At Coinbase, all customer funds continue to be safe and accessible, including USDC conversions that will resume on Monday,” Coinbase said.
Other major stablecoins that didn’t stick to USDC have also managed to regain their USD pegs, with Dai at $0.989 and USDD at $0.986.
Given the changes in stablecoins and banks, #Binance Will convert the remaining $1 billion industry recovery plan fund from BUSD to native cryptocurrency, including #bitcoin, #BNB and ether. Some money movement will happen on-chain. transparency.
— CZ Binance (@cz_binance) March 13, 2023
Changpeng Zhao, CEO of the world’s largest exchange Binance, also announced the conversion of several of his branded stablecoins, Binance USD, to Bitcoin, Ethereum, and BNB as part of an existing “fund industry recovery.” “With nearly $1 billion untapped, that means the market will soon experience extreme buying pressure,” said online data researcher The Data Nerd.
Sentiment recovers as ‘short squeeze’ risks rise
Reflecting how sensitive cryptocurrency market sentiment remains to macro events, the Crypto Fear and Greed Index returned to “fear” levels for the first time in two months, March 10.
The latest events have changed dramatically, with the index’s score rising from 33/100 to 49/100 – classified as “neutral” – in just one day.
Crypto Fear and Greed Index (screenshot) | Source: alternative.me
On derivatives exchanges, however, the downtrend remains. Over the weekend, funding rates hit their lowest level since the November 2022 FTX bombing, according to analytics firm Glassnode.
Tedtalksmacro sums it up: “Buying long positions pays off”.
Bitcoin Futures Funding Rate Chart | Source: Glassnode
Excessively negative funding rates have the potential to trigger a short squeeze—a domino effect of short positions being liquidated en masse when most of the market expects prices to continue to fall.
Cryptocurrency Liquidations Chart | Source: Coinglass
On March 12 alone, crypto short liquidations totaled more than $150 million, compared with a total of $39 million on March 13, according to Coinglass.
- Bitcoin Breaks $24,000, Alts Soar Double-Digits, Joe Biden Secures Deposits at SVB and Signature Bank
- Arthur Hayes Predicts Crypto Bull Market as Bitcoin Whales Add Coinbase Buying Pressure
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As reported by Cointelegraph
