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On March 11, Bitcoin (BTC) managed to hold onto the $20,000 support level despite briefly dropping below $20,000 overnight. Bitcoin quickly recovered and was trading around $20,050 at the time of writing. The market seemed more stable as concerns over the stability of US banks eased.
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<source: tradingview, bitstamp>
Silicon Valley Bank's (SVB) failure, which came after Silvergate, caused more problems for some crypto firms. One of the affected companies was Circle, a payments technology firm, which had deposited some of the reserve funds for its stablecoin, USD Coin (USDC), with SVB.
This caused USDC's value to drop below its $1 peg, and it could only be redeemed for $0.91.
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<source: tradingview, bitstamp>
The price of Bitcoin, in terms of USDC, reached over $26,000 on the Kraken exchange at one point. The situation was a major setback for Circle and other crypto firms affected by SVB's collapse.
Cory Klippsten, the CEO of Swan Bitcoin, argued that if USD Coin (USDC) is only 90% backed, then its equilibrium price should be zero, not $0.90. He explained that everyone has an incentive to redeem their USDC for $1 as soon as possible to avoid being left with worthless coins.
However, some others believed that the situation was not so dire and that USDC, which is the second-largest stablecoin by market cap, would not fail entirely. Circle, the company behind USDC, tweeted that it had five other banking partners for managing its cash reserves.
Traders remained anxious following the collapse of Silicon Valley Bank and the drop in the value of USD Coin (USDC). The average funding rates were very negative, similar to the situation following the FTX incident in November 2022. This indicates that many traders believe that Bitcoin could still experience further losses.
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<source: coinglass>
Commentator Tedtalksmacro analyzed the situation and suggested that the overwhelming bearish sentiment among traders could lead to a classic "short squeeze" rally in the BTC/USD price. He believes that the market is still heavily short on Bitcoin, which could provide fuel for a short-term test of at least $21,400. Tedtalksmacro also noted that the short squeeze was already "well underway" as Bitcoin had bounced back from multi-week lows below the $20,000 mark.
According to Crypto Tony, a popular market participant, despite the recent volatility in the market, Bitcoin remains strong. However, Tony believes that in the short term, Bitcoin could experience another drop to the interim support zone around $19,200. This view is contrary to those who believe in a short squeeze rally in the BTC/USD price.
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<source: twitter>
With the US federal reserve stepping up to save the bank crisis, this is a form of quantitative easing. Historically, whenever a stimulus program is announced, riskier assets like stocks and crypto rally. Whether it’s sustainable or not, it will depend majorly on inflation data.
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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.