27 Mar Bitfinex Alpha | Bitcoin Strengthens on Bank Runs
With another 25 basis point rate hike under our belts, the Fed reinforced its message last week that despite the recent bank failures, it still remains focused on combating inflation.
Fed Chairman Jerome Powell also warned that there were unlikely to be any rate cuts in 2023 – but both the bond market and even Fed participants themselves indicated that a rate cut could still be on the cards this year.
Powell was also bullish on the US banking sector, claiming that it remains strong. However, while the recent collapse of banks in the US has been characterised as the result of poor risk management and a sudden bank run, we reveal data that demonstrate that a flight of deposits from several banks has been taking place since last year.
The collapse of Silicon Valley Bank (SVB) is expected to tighten banks’ lending standards. More importantly, the planned resolution of the SVB indirectly increases moral hazard in the banking sector as the Fed still appears willing to backstop failing banks, with other US banks bearing the direct cost of making all depositors whole (through higher FDIC fees). This will eventually slow down the economy and may trigger a recession.
This has all been good for Bitcoin. Despite a momentary sharp pullback and long liquidations ($60.2 million in two hours alone), following the Fed’s rate hike, the market has interpreted Fed action as positive.
The BTC spot market has recorded its highest weekly volumes, while derivatives volumes are having a greater influence on Bitcoin prices, with derivatives trading increasing at a faster pace than spot volume, which in turn is increasing volatility. Options volumes are also peaking, signalling that institutional investors are increasingly participating in the market.
This increase in new market participants indicates that we may be in the early stages of a bull market, although we would still advocate caution as we are also seeing volatility increase.
On-chain metrics indicate that long-term Bitcoin holders are selling their coins at a profit, and we interpret this as a positive for the market, as it feeds into the demand from the newer entrants amid a still limited liquid supply.
In the crypto world last week, there was, as usual, some good news and less good news. The world’s largest stablecoin, Tether, estimated that it would earn a $700 million profit in Q1 2023, bringing its total excess reserves to over $1.6 billion for the first time.
Telegram also announced support for Tether’s TRC-20 stablecoin, USDt-TRON, allowing users to buy, swap, and make peer-to-peer trades with USDt (TRC-20) without transaction fees.
Terraform Labs co-founder Do Kwon has been charged by US prosecutors with orchestrating a cryptocurrency fraud that resulted in the loss of at least $40 billion in market value.
Meanwhile, Binance experienced technical issues with its spot trading on March 24th, resulting in the suspension of deposits and withdrawals.
Coinbase received a “Wells notice” from the SEC for possible violations of securities laws; Justin Sun and his companies have been charged by the SEC for securities law violations and fraud.
Kraken also announced that it had suspended ACH deposits and withdrawals due to its banking partner, Silvergate Bank, failing.
The much-anticipated launch of Arbitrum’s ARB token caused the project’s homepage to crash, resulting in unexpected errors during the claiming process, leading early claimants to sell their holdings and causing a sharp price drop.
Lastly, Celsius has been approved to pay up to 72.5 percent of holdings to custody account holders, who must sign an opt-in form by April 24, 2023. The payment will be divided into two settlements and will be paid out by June 11 and December 31, 2023.