Bitcoin and ether started the Asian trading day in the red, with bitcoin down 2.5% to $24,330 and ether down 3.7% to $1,649.
Liquidity is on everyone’s lips, especially given the Treasury General Account’s record losses during the Covid era and even more so after the collapse of the Silicon Valley bank.
Most recently, something appears to have spooked the Federal Deposit Insurance Corp as it replaced $40 billion in funds it took from the TGA, which was originally intended to alleviate market disruptions from the SVB’s closure.
As Reuters recently reported, the TGA lost nearly $100 billion last week before the FDIC returned its $40 billion.
“TGA was drawn throughout 2023 and that helped markets in general, including bitcoin. But over the past five days, TGA has had nothing to do with bitcoin’s outperformance,” Mark Connors, head of research at 3iQ, told CoinDesk in a note. “There’s a bit more confidence that the Bitcoin thesis is not only intact, but has been validated to a level we’ve never seen before.”
Connors says this is a vote of confidence for the Fed.
“When you see the Fed creating a bubble, bursting the bubble, and then not knowing what game to play through inflation or stabilizing financial markets, that doesn’t inspire confidence,” he continued.
A bigger question, according to Connors, is interest rate volatility, and the market hates uncertainty.
“The reason for this is important because interest rates are used to value every asset on the planet,” he said. “And when you have uncertainty about interest rates, you have uncertainty about what everything is worth.”
The next meeting of the Federal Open Market Committee is scheduled for March 21-22.
Bitcoin and Ether volatility is stunning bears and bulls alike
Above-average market volatility impacted bulls and bears alike as crypto futures raked in $300 million in liquidations in a 24-hour period on Wednesday.
Liquidation refers to when an exchange forcibly closes a trader’s leveraged position due to a partial or total loss of the trader’s initial margin. This happens when a trader cannot meet the margin requirements for a leveraged position (does not have sufficient funds to keep the trade open).
Large liquidations can signal the local top or bottom of a steep price move, which can allow traders to position themselves accordingly.
Bitcoin and Ether briefly surged above $26,000 and $1,770, respectively, on Tuesday as investors discounted the long-term implications of a regulatory crackdown on crypto-friendly banks and US Consumer Price Index (CPI) data pointed to a slowdown in inflation in the coming months.
Bitcoin’s weekly chart shows the cryptocurrency once again struggling to gain a foothold above $25,000, limiting gains over the past month and August 2022. According to chartered market technician Aksel Kibar, a break above $25,000 would shift focus to the next hurdle at $28,600. All About Bitcoin host Christine Lee breaks down the Chart of the Day.
But the euphoria was short-lived as both major tokens fell as much as 5% from Tuesday’s highs before gradually stabilizing. In the Asian morning hours on Wednesday, Bitcoin was trading just below $25,000 while Ether was trading just above $1,700.
The volatility caused over $140 million in Bitcoin futures and $80 million in Ether futures to lose. Of this, 58% of the futures losses came from short positions or bets against price increases, while the remainder came from long positions or bets for price increases – meaning that both short sellers and long traders were affected almost equally.
Among other major tokens, futures on Conflux’s CFX tokens and Filecoins FIL had liquidations of $8M and $5M, respectively, as trading volumes for both surged on fundamental developments.
Meanwhile, some market watchers said the price action came as investors sought alternative assets following the collapse of Silicon Valley Bank last week.
“Bitcoin’s rally to a new yearly high as Silicon Valley bank falls and inflation remains stubborn shows that investors are looking to Bitcoin for stability in highly uncertain market conditions,” Alex Adelman, co-founder of bitcoin rewards app Lolli, told CoinDesk.
“While many have viewed bitcoin as a hedge against inflation and tracked its price movements accordingly, bitcoin’s relationship to traditional finance is more complex,” Adelman explained, adding that bitcoin has acted as an “alternative to the traditional financial system in general.”
“The weakness across the banking sector has heightened investor awareness of Bitcoin’s unique value proposition. In the coming weeks, we will continue to see increasing demand for Bitcoin as a superior system for securely storing and transferring money,” Adelman said.
Bitcoin (BTC) dominance rate has risen amid increasing turmoil in crypto markets, according to TradingView data. This comes as San Francisco’s Federal Home Loan Bank said it had not forced Silvergate to repay advances, which was rumored to be the reason crypto-focused Silvergate decided to close. Lyn Alden Investment Strategy founder Lyn Alden and Dunleavy Investment Research crypto strategist Tom Dunleavy joined “first movers.”