CoinLoan Weekly: XRP rockets, BTC as safe haven asset, fractured liquidity
Bitcoin dipped to $27,500 on Monday, March 20, and bounced back to a 7-day high of $28,792.01 on Wednesday, March 22. It then abruptly dove below $27,000 and headed up, surpassing $27,750 on Thursday, March 23. BTC spent most of Saturday (March 25) around $27,500, spiked at $28,245 the next day, and kept to just under $28,000. On Monday, March 27, its price ebbed below $27,000.
The Crypto Fear and Greed Index stayed in the greed territory with a slight dip on Thursday, March 23. Wednesday’s price dive followed the SEC's Wells notice to Coinbase and the news of its lawsuit against Tron founder Justin Sun. Both involved allegations of selling unregistered securities. Coinbase CEO Brian Armstrong explained that the notice concerned his company's "staking and asset listings" and "a Wells notice typically precedes an enforcement action."
On Friday, March 24, cryptocurrencies sank along with other risk-on markets on new concerns about the global banking system. Mere days after UBS's decision to acquire Credit Suisse, Deutsche Bank saw the cost of its default insurance soar and its stock plummet.
At press time, BTC is trading at $27,078.10, with a 24-hour loss of -2.9% and a 7-day change of -3.0%.
From $1,800, the Ether price edged to $1,825 on Tuesday, March 21, sank to $1,728.24 the next day, and jumped on Thursday, March 23, to a 7-day high of $1,845.81. Having slid below $1,750, it then seesawed above this level through Saturday, March 25. Afterward, ETH dipped and bounced back to teeter below $1,800 until Monday evening (March 27), when it almost hit $1,700.
Amid the banking crisis, Ether got significantly less attention than Bitcoin. The latter was touted as protection against the ongoing turmoil in the US, a narrative supported by prominent Wall Street figures like Cathie Wood. On Thursday, March 23, the ETH/BTC pair was 9% down month-to-date, headed toward 6-month lows.
Ether's peak on Thursday, March 23 ($1,855 as per CoinDesk data), was a year-to-date high and the highest price since August. This rally followed an increase in network activity. The Ethereum DeFi ecosystem grew along with the coin and daily fees. As a result, the network's Proof of Stake (PoS) tokenomics turned deflationary, driving revenue up by 10% in just 24 hours. Meanwhile, Matter Labs launched the mainnet of zkSync Era — the first publicly available zero-knowledge scaling system for Ethereum — on Friday, March 24.
At the time of writing, ETH is worth $1,731.95, with a 24-hour slip of -1.4% and a 7-day decrease of -0.7%.
XRP holders rejoiced at new upswings. The price rocketed from around $0.378 on Tuesday, March 21, and peaked at $0.493406 the next day. A decline and partial recovery ensued as XRP rose from a low of $0.418181. It traded between $0.425 and $0.450 on Friday, March 24, jumped higher on Saturday, March 25, and slid from $0.467. On Monday, March 27, XRP rose past $0.480.
XRP made steady gains ahead of a ruling in the SEC vs. Ripple case, which has been dragging on since 2020. Several prominent legal experts, including John E Deaton, expect a positive outcome for the blockchain firm. A critical defense argument is that the regulator failed to provide a "fair notice" before suing the company. The verdict is expected by the end of March.
Meanwhile, XRP whales continued to stack up tokens. The total balance for addresses with 10 million-100 million XRP is up by over 1% since February, corresponding to a 0.75% supply drop in the 1 million-10 million category. The 1,000-1 million XRP cohort also increased its holdings.
As of this writing, XRP is trading at $0.491556, with a 24-hour uptick of +6.8% and a 7-day surge of +30.3%.
Traders flock to Bitcoin amid banking contagion fears
After a week of bank turmoil with another Fed hike, investors turned their sights to the top 10 cryptos. BTC and other non-stablecoin assets jumped early on Monday, March 27, with Ripple and Litecoin leading the gains.
BTC pushed above $28,000 in the early hours, but CoinDesk experts suggest that a consolidation at $25,000 is possible. Over the past seven days, XRP has gained roughly 30%, well ahead of Litecoin with around 10%. These tokens are trading at $0.469533 and $92.33, respectively. The total crypto market cap now stands at $1.17 trillion, according to CoinGecko.
Bitcoin's safe haven advantage
Last week's highlights included shaky banks and the Fed's 25-basis-point rate hike. Speaking to Forkast.News, Freeport cofounder Maxwell Goldstein explained: "Recent bank failures have also strengthened the case for investing in Bitcoin, along with murmurs of hyperinflation." Those fears prompt investors to seek "a safe haven asset, and Bitcoin fits the bill."
US equities reflected a change in sentiment – The Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite Index climbed on Friday, March 24. After the weekend, the US futures also edged higher.
US authorities tried to reassure worried investors. Admitting that "some institutions have come under stress," the Financial Stability Oversight Council claimed the US banking system remained "sound and resilient." Several Biden Administration officials have reiterated similar reassurances in recent weeks.
Yet that wasn't enough to quell the concerns. The biggest lender in Germany, Deutsche Bank, saw a stock sell-off on Friday, March 24, as the cost of its default insurance soared. So far this month, its shares have shed a fifth of their value.
Wells notice to Coinbase
Crypto investors are also closely following the SEC's action against Coinbase. On Wednesday, March 22, the leading US crypto exchange received a Wells notice alleging that its staking products constituted unregistered securities.
Custodia Bank founder and CEO Caitlin Long interpreted this as a sign that "the Biden Administration wants all crypto — even the legit parts of it — run out of the US."
According to Oanda Senior Market Analyst Edward Moya, the outcome of this case will strongly affect crypto prices. He said, "Coinbase's success is vital for longer-term crypto growth. In the US, Coinbase is a critical option for how people are getting started with crypto."
Bitcoin may not be ready to become a USD hedge
Bitcoin has surged amid the US banking crisis but may fail to become a USD hedge. According to Kaiko's research analyst Conor Ryder, outsized declines are possible in the near future due to low liquidity. More traders can now sway the prices, and support in both directions is weak.
As confidence in the US and EU banks crumbles, individuals seek alternatives to bank deposits. The risks of dollar savings are now as salient as during the 2008 financial crisis. In theory, Bitcoin must fit diversified portfolios perfectly. As a fully decentralized form of money, it is beyond the control of any entity.
However, Ryder also connects the upswing to the market structure – specifically, "fractured liquidity." Last week, BTC's market depth – "the number of orders waiting to be filled on an order book" – hit 10-month lows. Thus, the coin met with little resistance as it rocketed. Low liquidity corresponds to high volatility and weakened support in both upward and downward directions.
The market is still grappling with the liquidity gap created by the FTX fiasco. The failures of the Silvergate and Signature banks made it worse by depriving market makers of USD payment rails. As a result, liquidity has been leaving order books.
Furthermore, Binance has reintroduced fees for BTC-USDT and BTC-BUSD trading, forcing market makers to accept tighter spreads. BTC-USDT, the most liquid pair in crypto, fell by 70% on Binance overnight. BTC-TUSD is the only zero-fee alternative left, but it is unclear if liquidity will flow into it.
The solution, not the cause
CoinDesk's Adam Blumberg is more optimistic — he goes so far as to call crypto "the solution to bank runs." The TradFi crisis, he suggests, may prove favorable as BTC was created for such scenarios, and blockchain technology has three crucial advantages:
- Self-custody: Trust in conventional financial institutions is crumbling despite stringent government regulation.
- Transparency: Bank asset pools are less transparent; depositors do not know how much liquidity is available and may withdraw out of fear.
- Immediate settlement: The crypto system is on 24/7 with instant or near-instant settlement; for banks, there is a time mismatch between loans and securities – as the latter don't settle instantly, banks may have trouble freeing capital.
Blumberg mentions two prerequisites for continued adoption. First, individuals and entities must realize that crypto is a better financial system. Secondly, crypto custody must become safer, which requires the participation of "financial professionals, including advisors, CPAs, and lawyers."