Wednesday, May 29, 2024

Major Bitcoin price metrics point to the downside for Bitcoin below $22.5K


Bitcoin (BTC) faced a 1-hour pullback of $1,420 on March 3 after Silvergate Bank stock collapsed 57.7% due to heavy losses and “suboptimal capitalization.” The US fintech-friendly bank has been a major provider of financial infrastructure to exchanges, institutional investors and miners, and some investors worry its potential demise could have widespread negative effects on the crypto sector.

The crypto-friendly bank has halted its digital asset payment railroad — the Silvergate Exchange Network (SEN) — citing excessive risk. Silvergate also reportedly borrowed $3.6 billion from the US Federal Home Loan Banking System, a consortium of regional banks and lenders, to mitigate the effects of the increase in withdrawals.

Among the affected exchanges was Dubai-based Bybit, which announced it would suspend transfers in US dollars after March 10. The move comes after international platform Binance suspended US dollar cash withdrawals and deposits on February 1. 6.

Fiat’s on and off slopes have always been a troublesome area due to the lack of a clear regulatory environment, especially in the US. Additional uncertainty came from a 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 fraudulent sales invoices and hid behind third parties to open bank accounts.

Despite a Wall Street Journal report alleging that Tether is under investigation by the Department of Justice, (USDT) remains the absolute leading stablecoin with a market capitalization of $71.4 billion. The issue has spread throughout the industry as Paxos, the issuer of the third largest stablecoin, was ordered ordered by the New York Department of Financial Services on February 3. 13 to stop the Binance USD (BUSD) issuance.

Let’s take a look at the Bitcoin derivatives metrics to better understand how professional traders fare in the current market conditions.

Derivatives metrics show buyers’ appetite shrinking

Traders should refer to the USDC premium to gauge the demand for cryptocurrency in Asia. The index measures the difference between the trading of stablecoins based in China and the US dollar.

Excessive buying demand for cryptocurrencies could pressure the index above the fair value of 104%. On the other hand, the supply of the stablecoin market has been overwhelmed by the bear market, causing a discount of 4% or higher.

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USDC peer-to-peer. US dollar / Chinese yuan. Source: OKX

The US dollar premium in Asian markets has been slightly positive over the past three weeks, but it’s nowhere near the sizable 4% premium since early January. Additionally, the metric shows weak demand for stablecoins in Asia, which fell from 2.5% in the previous week.

However, the current premium of 1.5% should be interpreted as positive given the bearish news flow regarding cryptocurrency pushlines.

Quarterly Bitcoin futures contracts are the preferred tools for whale and arbitrage desks. Fixed month contracts usually trade at a slight premium than the spot markets, which indicates that sellers are asking for more funds to withhold settlement for a longer period.

Thus, futures contracts must trade at an annual premium of 5% to 10% in healthy markets – this situation is known as contango and is not limited to the cryptocurrency markets.

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The 3-month Bitcoin futures annual premium. Source:

The chart shows that traders have given up on any possibilities of breaking out of neutral-to-bearish territory on March 3 as the benchmark moved away from the 5% threshold. However, the current premium of 3% is down from last week’s 4.5%, reflecting a lack of investor optimism.

On the bright side, the 6.2% drop in the bitcoin price had an almost unexpected impact on the bitcoin futures markets. Rising demand for leveraged bearish bets could have moved the Basis Index into negative territory, known as a pullback.

Additional volatility is expected on March 14th

in the week following February. On the 27th, the bitcoin price lost 4.5%, indicating that investors are actually worried about infection from Silvergate Bank. Even if cryptocurrency exchanges and stablecoin providers refuse exposure to the ailing fintech, the cutting of the fintech’s payment processing system has created uncertainty.

Analysts are now focusing on the release of Consumer Price Index (CPI) inflation data on March 14th. Cointelegraph noted that CPI data tends to trigger short-term volatility across risk assets, although it is often short-term in Bitcoin price movements.

Derivatives metrics currently point to limited pressure from the Silvergate Bank saga, but the odds favor bears from Bitcoin given diminishing demand for stablecoins in Asia and the premium for BTC futures.