Key Bitcoin price metrics point to BTC downside below $22.5K

Bitcoin (BTC) faced a one-hour pullback of $1,420 on March 3 following Silvergate Bank’s 57.7% stock crash, which was attributed to significant losses and “suboptimal capitalization.” The US fintech-friendly bank was a key financial infrastructure provider for exchanges, institutional investors and mining companies, and some investors are concerned that its potential demise could have wide-ranging negative consequences for the crypto sector.

The crypto-friendly bank discontinued its digital asset payment railway – the Silvergate Exchange Network – citing excessive risk. Silvergate also reportedly borrowed $3.6 billion from the US Federal Home Loan Banks System, a consortium of regional banks and lenders, to cushion the effects of a surge in withdrawals.

Among the affected exchanges was Dubai-based Bybit, which announced the suspension of US dollar transfers after March 10. The move follows Binance’s international platform suspending withdrawals and deposits in US dollars on February 6.

Fiat ramps have always been troublesome areas due to the lack of a clear regulatory environment, especially in the US. Further uncertainty came from The Wall Street Journal’s March 3 report about iFinex, the holding company behind Tether and Bitfinex. Leaked documents and emails revealed that the group allegedly relied on fake sales invoices and hid behind third parties to open bank accounts.

Despite a Wall Street Journal report alleging that Tether is under investigation by the Department of Justice, USDT (USDT) remains the absolute leading stablecoin, with a market cap of $71.4 billion. The issue has spread across the industry as Paxos, the issuer of the third largest stablecoin, was ordered by the New York Department of Financial Services on February 13 to stop issuing Binance USD (BUSD).

Let’s look at Bitcoin derivatives calculations to better understand how professional traders are positioned in the current market conditions.

Derivatives calculations show the diminishing appetite of buyers

Traders should refer to the USD Coin (USDC) premium to gauge cryptocurrency demand in Asia. The index measures the difference between China-based peer-to-peer stablecoin trades and the US dollar.

Excessive demand for the purchase of cryptocurrency can push the indicator above the fair value of 104%. On the other hand, stablecoins’ market supply is flooded during bearish markets, causing a 4% or higher discount.

The USDC premium indicator in Asian markets has been mildly positive over the past three weeks, but it is nowhere near the significant 4% premium from early January. In addition, the calculation shows weakened demand for stablecoins in Asia, down from 2.5% last week.

Still, the current premium of 1.5% should be interpreted as positive considering the bearish news flow regarding crypto-fiat payment railways.

Bitcoin quarterly futures are the preferred instruments of whales and arbitrage tables. These fixed-month contracts typically trade at a slight premium to the spot markets, indicating that sellers are asking for more money to hold off settlement for longer.

Accordingly, futures contracts should trade at an annual premium of 5-10% in healthy markets. This situation is known as “contango” and is not exclusive to crypto markets.

The chart shows that traders abandoned any prospect of exiting the neutral-to-bearish range on March 3 when the base indicator moved away from the 5% threshold. However, the current premium of 3% is lower than last week’s 4.5%, reflecting less investor optimism.

On the bright side, the 6.2% drop in the BTC price had an almost uneventful impact on Bitcoin futures markets. Higher demand for bearish bets using leverage would have moved the base indicator into the negative area, known as “backwardation”.

Further volatility is expected on March 14

In the week after February 27, Bitcoin’s price lost 4.5%, indicating that investors are effectively worried about contagion from Silvergate Bank. Although crypto exchanges and stablecoin providers have denied exposure to the troubled fintech firm, the cut-off from the payment processing system has created uncertainty.

Analysts are now focused on the announcement of consumer price index (CPI) inflation data on March 14. As Cointelegraph noted, CPI prints tend to trigger short-term volatility across risk assets, although they are often short-lived in Bitcoin’s price movements.

Derivatives calculations currently point to limited pressure from the Silvergate Bank saga, but the odds favor Bitcoin bears, given the waning demand for stablecoins in Asia and the BTC futures premium.