Original title: "Three Fallen Banks"
Original author: Checkmate, Glassnode
Original compilation: Dongxun, the way of DeFi
After one of the biggest weeks of 2023, the digital asset industry has lost three crypto-friendly banking institutions in the United States. So far, however, the main reaction from investors seems to be to seek safety in the least trusted major assets, BTC and ETH.
Last week has become the fastest-paced and most influential week in the field of digital assets this year. In just a few days, three major U.S. banking institutions, all of which service companies in the crypto industry, have gone into voluntary liquidation or been taken over by U.S. regulators.
Silvergate (SI) announced a voluntary liquidation in an orderly manner on March 8, returning funds in full to depositors.
Silicon Valley Bank (SVB), the 16th largest bank in the United States, was closed and placed into receivership by the Federal Deposit Insurance Corporation (FDIC) on March 12, making the $209 billion bank the second-largest bankrupt in U.S. history.
Signature Bank of New York (SBNY) was also closed on March 12, according to the Federal Reserve's announcement on the matter.
For the three banking institutions, all deposits are expected to be returned through reserves held, or through deposit guarantees from the FDIC and US regulators. The weekend was volatile as many of the largest digital asset firms and stablecoin issuers used one or more of these banking partners. What deserves special attention is Circle, the issuer of USDC. He informed that he holds about 3.3 billion US dollars in cash in SVB, creating conditions for USDC to temporarily break the peg of 1 US dollar.
This article will focus on some key implications both on-chain and in the broader market structure, including:
Several stablecoins depegged from $1, and dominance shifted back to Tether (USDT).
Net capital outflows in the digital asset market can be observed in two stablecoins as well as the two major currencies of BTC and ETH.
Futures open interest hit cyclical lows despite higher trading volumes. Speculative interest led to an explosive rally in BTC to $22,000 and ETH back to $1600.
Bitcoin price discovery trades between several popular and widely observed technical analysis pricing models. After finding resistance at the 200-day and 365-day moving averages (~25.0k) in February, the price touched around the 200-day and 111-day moving averages (~$19.8k) this week before bouncing off.
stable currency
Live Advanced ChartsFor the first time since the collapse of the LUNA-UST project, this week saw stablecoin price volatility amid fears that USDC would partially lose support. USDC fell to a low of $0.88, followed by DAI at $0.89, the latter as a result of DAI being roughly 65.7% backed by stablecoin collateral.
Additionally, Gemini's GUSD and Paxos' USDP are both slightly below their $1 peg, while BUSD and Tether are trading at a premium.
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Live Advanced ChartsIn the case of DAI, stablecoins have become the primary form of collateral backing it, a trend that has been growing since mid-2020. USDC accounts for about 55.5% of direct collateral and has a large share of the various Uniswap liquidity positions used, totaling about 63% of all collateral.
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As we reported in mid-2022, Tether’s dominance in the stablecoin market has been structurally declining since mid-2020. However, with recent regulatory moves against BUSD, and concerns related to USDC this week, Tether’s dominance has climbed back above 57.8%.
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Live Advanced ChartsTotal capital outflow
Estimating true capital inflows and outflows in digital asset markets can be tricky, but in most cases, the initial inflow of capital is through two major assets (BTC and ETH) or stablecoins. Therefore, the realized caps of BTC and ETH combined with the circulating supply of major stablecoins provide a fairly robust measure.
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Live Advanced Chartsstable currency
Live Advanced Chartsstable currency
Live Advanced Chartsstable currency
Live Advanced ChartsOn the other hand, the two major stablecoins see net inflows to trading platforms of $1.8 billion to $2.3 billion per month. It’s important to note that this is more than offset by BUSD’s outflow from trading platforms at a staggering rate of -$6.8 billion per month. Therefore, it is likely that some degree of "stablecoin switching" is taking place.
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Live Advanced Chartsflush futures
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Real-time professional chartsstable currency
Real-time professional chartsstable currency
Real-time professional chartsstable currency
Real-time professional chartsThis exacerbated the liquidation in the ETH futures market. More than $48 million of shorts were liquidated when the market rallied back above $1,600, meaning liquidations were 2.5 times more notional relative to BTC.
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Real-time professional chartsWe'll end with a final chart that overlays the on-chain reaction of short-term holders (STHs) with that of the leveraged futures market. This chart shows STH-SOPR minus 1, plotted against the annualized futures funding rate, and the results are as follows:
With our defined age threshold of 155 days, almost all STH coins are likely to be profitable, except for those acquired near local highs.
Based on our defined age threshold of 155 days, almost all STH coins are likely to be profitable, except for those tokens obtained near local highs. STH-SOPR (minus 1) returned -3.8%, a relatively large realized loss that suggests local "top buyers" are now dominating spending. The direction and performance of the STH-SOPR tends to correlate with the funding rate. These two metrics reflect a different but significant subset of the BTC market, with one representing spot/on-chain and the other representing leveraged futures.
With that in context, it appears that most of the tokens spent this week were realized losses by top local buyers (other holders were relatively dormant). This happened before futures entered sharp backwardation, with traders opening speculative short positions.
in conclusion
in conclusion
After one of the most impactful weeks of 2023, the digital asset industry is missing three crypto-friendly banking institutions in the U.S. and finds itself in an increasingly hostile regulatory environment. With traditional financial markets closed for the weekend, some stablecoins have seen deviations from the $1 peg, recovering with news of guaranteed deposits on Sunday.
The reaction of investors is somewhat similar to the post-FTX environment, with a net transfer of stablecoins to trading platforms instead of hosting BTC and ETH. On a broader scale, however, the industry experienced net capital outflows of around $5.9 billion in the last month.
The industry, and indeed the global financial system, remain in uncharted waters. In many ways, this week reinforced Satoshi Nakamoto’s reasons for creating a trustless, scarce digital asset in the first place.
