Factors Affecting the Rise of the Crypto Market – March 2023 Issue – Cryptopolitan
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 economic 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 rise amid traditional market downturns
After a rally yesterday, Bitcoin gained momentum in early morning trading in Asia as regulators acted to prop up the US banking industry following failures at California-based lenders. This move also helped restore USDC’s stablecoin parity.
The majority of the top ten non-stablecoin cryptocurrencies increased in value. However, US stocks ended mixed on Monday, rattled by bank failures, as speculation mounted that the banking crisis could force the Federal Reserve to delay plans to raise interest rates.
According to CoinMarketCap data, Bitcoin rose 7.21% in the last 24 hours to USD 24,251 at 09:00 in Hong Kong. The world’s largest crypto is up 8% in the past seven days after erasing losses earlier this month when crypto-linked bank Silvergate failed, triggering a crypto market selloff.
Ether gained 3.08% to $1,673, up 6.84% in the past seven days. Binance’s BNB token rose 5.09% to US$308.94, ranking second in the top ten by market capitalization and gaining 7.06% over the past seven days.
The total crypto market capitalization has increased by 4.61% in the last 24 hours to $1.08 trillion. The 24-hour trading volume increased by 35.57 percent to $93.65 billion. Despite assurances from US regulators and President Joe Biden that deposits would be protected, US bank stocks were severely punished. First Republic, a bank headquartered in San Francisco, fell more than 60 percent and was briefly suspended from trading.
Factors contributing to the market increase
The difference between the US 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 US dollars from each other. According to data source MacroMicro, the FRA-OIS spread widened to 54.00, the highest level since March 2020.
Loans and lending between banks are a crucial part of the banking system which enables the banks to handle their immediate liquidity needs. Banks face a greater liquidity risk when the interbank lending market is limited or dysfunctional, which can lead to bankruptcy.
Therefore, the sharp increase in the FRA-OIS spread indicates that the system has reached a fragile point. This strengthens the case for the Fed to hold off on raising interest rates at its meeting next week or opt for a smaller 25 basis point increase instead of the 50 basis point increase that was expected last week.
In one year, the central bank increased the official lending rate by 450 basis points, which sent risk assets, including cryptocurrencies, tumbling.
Stress indicators in the financial markets have risen to the highest levels since the European debt crisis ten years ago. At the same time, credit swaps, which measure the costs of securing bond portfolios against default, have increased markedly. Bitcoin has benefited as more government guarantees could mean more money printing.
According to a Reuters poll, 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 the Fed will raise interest rates by 25 basis points this month. The probability of no interest rate increase is 35%. Interest rates in the US have been at their highest since October 2007, and range from 4.5% to 4.75%.
According to reports, BTC overturned the market cap of payment processing giant Visa for the third time in its history last month, putting it just ahead of the payments company.
The gap between the two market capitalizations is now more than $20 billion, although it is still some distance behind gold, which has a market value of $12.59 trillion, followed by Apple, which has a market value of $2.380 trillion.
BTC sees highest liquidations in two months
Bitcoin is up over 11% in the past 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, was depegged.
On Monday, more than $100 million in bitcoin shorts, or bets against price increases, were liquidated. This was the most liquidated amount since January 14, when a bitcoin rally resulted in a liquidation of $500 million across multiple crypto futures contracts.
According to Coinglass data, 78% of all bitcoin futures traders lost money on Monday. Losses were primarily spread across cryptocurrency exchanges Binance, OKX, Huobi and Bybit.