Crypto markets have been in recovery mode for quite some time. However, one thing is certain: the crypto ecosystem has defied all attempts to turn it into a non-existent financial concept. Despite a turbulent week for crypto following the failures of Silicon Valley Bank (SVB) and Signature Bank, Bitcoin’s (BTC) market cap has surpassed that of tech titan Meta.
Crypto markets surge amid traditional markets downturns
Following a rebound yesterday, Bitcoin gained momentum in Tuesday morning trading in Asia, as regulators acted to shore up the US banking industry following failures at California-based lenders. This move also aided in the restoration of USDC’s stablecoin parity.
The majority of the top ten non-stablecoin cryptocurrencies increased in value. However, U.S. equities ended mixed on Monday, rattled by the bank failures, as speculation grew that the bank problem might force the Federal Reserve to postpone its interest-rate hike plans.
According to CoinMarketCap data, Bitcoin rose 7.21% in the last 24 hours to US$24,251 at 09:00 a.m. in Hong Kong. The world’s largest crypto is up 8% in the last seven days after erasing losses earlier this month when crypto-linked bank Silvergate failed, triggering a crypto market sell-off.
Ether increased 3.08% to $1,673, a 6.84% increase in the last seven days. Binance‘s BNB token gained 5.09% to US$308.94, ranking second in the top ten by market capitalization and gaining 7.06% over the last seven days.
The total crypto market cap increased 4.61% in the past 24 hours to $1.08 trillion. The 24-hour trading volume increased 35.57 percent to $93.65 billion. Despite assurances from U.S. regulators and President Joe Biden that deposits would be protected, U.S. bank stocks were punished severely. First Republic, a bank headquartered in San Francisco, dropped more than 60 percent and was briefly suspended from trading.
Factors contributing to the market surge
The difference between the U.S. three-month forward rate agreement (FRA) and the overnight index swap rate (OIS), also known as the FRA-OIS spread, measures how expensive it is for banks to borrow U.S. dollars from one another. According to the data source MacroMicro, the FRA-OIS spread increased to 54.00, the highest level since March 2020.
Borrowing and lending between banks is a crucial aspect of the banking system that enables banks to manage their immediate liquidity requirements. Banks face a greater liquidity risk when the interbank lending market is constrained or dysfunctional, which can lead to bankruptcy.
Therefore, the sharp increase in the FRA-OIS spread indicates that the system has reached a point of fragility. This strengthens the case for the Fed to pause its rate hike cycle at its meeting next week or to opt for a smaller 25 basis point increase instead of the 50 basis point increase that was anticipated last week.
In one year, the central bank increased the official borrowing rate by 450 basis points, causing risk assets, including cryptocurrencies, to fluctuate.
Financial market stress indicators have risen to the highest levels since the European debt crisis a decade ago. At the same time, credit default swaps, which measure the cost of insuring bond portfolios against defaults, have increased markedly. Bitcoin has benefited as more government guarantees might mean more money printing.
Market Analyst
According to a Reuters poll, the CPI will rise 0.6% month and 6% year, down from 6.4% in the year ended January 2023, but still well ahead of the Fed’s stated goal of keeping annual inflation below 2%.
According to CME Group analysts, there is a 65.0% chance that the Fed will raise interest rates by 25 basis points this month. The probability of no rate increase is 35%. Interest rates in the United States have been at their highest since October 2007, ranging from 4.5% to 4.75%.
According to reports, BTC flipped the market cap of payment processing giant Visa for the third time in history last month, putting it just ahead of the payments company.
The gap between the two market caps is now more than $20 billion, though it is still a long way from gold, which has a $12.59 trillion market cap, followed by Apple, which has a $2.380 trillion market cap.
BTC sees the highest liquidations in two months
Bitcoin has gained over 11% in the last 24 hours, recouping all weekend losses and setting a three-week high. The move may have surprised traders who had previously bet on falling prices after two key crypto-friendly banks were closed last week and USD Coin (USDC), a major stablecoin, depegged.
On Monday, more than $100 million in bitcoin shorts, or bets against price rises, were liquidated. This was the most liquidated amount since January 14, when a bitcoin surge resulted in a $500 million liquidation across several crypto futures contracts.
According to Coinglass data, 78% of all bitcoin futures traders lost money on Monday. The losses were primarily spread across the cryptocurrency exchanges Binance, OKX, Huobi, and Bybit.
