Liquidity is on everyone’s mind, especially in the face of record drawdowns from the Treasury General Account during the Covid era, and more after the failure of 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, initially earmarked to help ease market disruptions from the closure of SVB.
As Reuters recently reported, over the past week the TGA was down nearly $100 billion before the FDIC returned its $40 billion.
“The TGA was drawn down all during 2023 and that helped markets in general including bitcoin. But as of late in the last five days, the TGA had nothing to do with bitcoins’ outperformance,” Mark Connors, head of research at 3iQ, told CoinDesk in a note. “There’s a little more confidence that the bitcoin thesis is not just intact, but it’s been validated at a level that we’ve never seen before.”
Connors says this is a question of confidence for the Fed.
“When you see the Fed creating a bubble, popping the bubble and then not knowing which game to play by inflation, or stabilize financial markets, it does not instil confidence,” he continued.
A bigger question at hand is rate volatility, according to Connors, and the market hates uncertainty.
“The reason that’s important is because rates are used to price every asset on the planet,” he said. “And when you have uncertainty on interest rates, you have uncertainty on what everything is worth.”
The next Federal Open Market Committee meeting is scheduled to take place March 21-22.
Bitcoin, Ether Volatility Stuns Bears and Bulls Alike
Higher-than-usual market volatility affected bulls and bears alike as crypto futures racked up $300 million in liquidations over a 24-hour period on Wednesday.
Liquidation refers to when an exchange forcefully closes a trader’s leveraged position due to a partial or total loss of the trader’s initial margin. It happens when a trader is unable to meet the margin requirements for a leveraged position (fails to have sufficient funds to keep the trade open).
Large liquidations can signal the local top or bottom of a steep price move, which may allow traders to position themselves accordingly.
Bitcoin and ether briefly inched above $26,000 and $1,770 respectively on Tuesday as investors brushed off the long-term effects of a regulatory clampdown on crypto-friendly banks and U.S. consumer price index (CPI) data pointed to slowing inflation in the coming months.
Bitcoin’s weekly chart shows the cryptocurrency is again struggling to establish a foothold above $25,000, which capped gains last month and in August 2022. According to chartered market technician Aksel Kibar, a breakout 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 dipped as much as 5% from Tuesday’s highs before gradually stabilizing. In Asian morning hours on Wednesday, bitcoin traded just under $25,000 while ether traded slightly over $1,700.
The volatility caused over $140 million in bitcoin futures and $80 million in ether futures to take on losses. Of this, 58% of futures losses came from shorts, or bets against price rises, while the remaining came from longs, or bets on price rises – meaning both short sellers and long traders were hit almost equally.
Among other major tokens, futures on Conflux’s CFX tokens and Filecoin’s FIL had $8 million and $5 million in liquidations, respectively, as trading volumes for both surged on fundamental developments.
Meanwhile, some market observers said the price action came as investors looked for alternative assets following last week’s collapse of Silicon Valley Bank.
“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 looked to bitcoin as a hedge against inflation and tracked its price moves accordingly, bitcoin’s relationship to traditional finance is more complex,” Adelman stated, adding that bitcoin worked as an “alternative to the traditional financial system at large.”
“Weakness across the banking sector has heightened investor awareness of bitcoin’s unique value proposition. In the coming weeks, we will continue to see increased demand for bitcoin as a superior system for holding and moving money securely,” Adelman said.
The bitcoin (BTC) dominance rate has climbed amid increasing turbulence in crypto markets, according to TradingView data. This came as the Federal Home Loan Bank of San Francisco says it didn’t force Silvergate to repay advances, which was rumored to be the reason why crypto-focused Silvergate decided to shut down. Lyn Alden Investment Strategy Founder Lyn Alden and Dunleavy Investment Research Crypto Strategist Tom Dunleavy joined “First Mover.”