The market valuation of the largest cryptocurrency remains above $22.4K as investors weigh Silvergate’s woes and anticipate what is likely to be positive economic statistics from China.
Bitcoin and altcoins have struggled to break the $25,000 barrier, but on-chain analysis suggests that this resistance may be a part of the transition on the way out of the bear market. Let’s look at what the market has in store for us.
The Macro Scene
The digital asset industry is sucking up the aftermath of the woes as Silvergate Capital Corp., a crypto-friendly US bank, suffers financial difficulties and evaluates its future viability. The bank provides a widespread payments network that allows crypto companies to send and receive funds instantly. However, many digital asset exchanges, stablecoin providers, and trading platforms no longer support or initiate transfers through Silvergate.
The woes at Silvergate are merely the most recent manifestation of the ripple effect created by the November collapse of the FTX exchange. The bank faced a run on assets when FTX, a crucial client, declared insolvency last year.
NOW: Silvergate sinks 43% as it evaluates going concern ability https://t.co/StpJTtlg47 pic.twitter.com/jXlknrY3Wb
— Bloomberg Markets (@markets) March 2, 2023
The digital asset industry must also deal with a broader regulation crackdown in the United States and the general perception that interest rates will remain elevated for an extended period to combat inflation, stifling risk appetite. In the meantime, investors are preparing for the Jerome Powell hearing before a US Senate committee. Moreover, it’s been disclosed to the public that the crypto industry will be a subject for discussion during the session.
On the other hand, the Federal Reserve Chairman, Jerome Powell, will testify to Congress about the status of the US economy and the central bank’s monetary policy forecast for the rest of the year in The Semiannual Monetary Policy Report. As with Powell’s previous comments, the conference has the potential to draw significant attention from traders and lead to substantial volatility.
Bitcoin vs. S&P 500 Price Divergence
The resumption of a strong correlation between the price of Bitcoin and the S&P 500 Index has been a vital indicator of the crypto market rebound following the FTX crash. However, the Silvergate crisis has had a noticeable effect on the cryptocurrency market and has now changed the otherwise optimistic atmosphere to one of neutrality.
According to on-chain analytics, most traders were long crypto assets before the outbreak of Silvergate-related FUD. Despite this and last week’s stock market surge, cryptocurrency rates have shown almost no indications of revival so far. Notably, the present level of the S&P 500 vs. Bitcoin price divergence is the highest since the FTX meltdown in November 2022.
Therefore, any reassuring remarks made by Powell during the hearing regarding indications of deflation or an economic revival are likely to cause a spike in both stock markets and Bitcoin prices. The market will also weigh in on any critical info on the Grayscale vs. SEC litigation.
Realized Price Metric Reveals Profit-Taking
Bitcoin faces formidable economic challenges from investors’ worry about Federal Reserve’s interest rate hikes and high inflation, leading them to weigh the time value of money (TVM) of BTC investments. So, Grouping Bitcoin’s holders by how long they have kept BTC and averaging the purchase price can estimate TVM on-chain.
Those who invested in Bitcoin (BTC) in the last six months have seen their average actual price rise to over $21,000 owing to the early bear market conditions. Additionally, the average market realized price for all Bitcoin holders is presently at $19,800, currently in profit.
In contrast, Bitcoin kept for over six months has a realized price higher than the other market groups at $23,500. When Bitcoin’s price rises above $23,500, investors who have seen little TVM return for more than six months may become impatient and push for a breakout to secure profits.
Market Bottom And Sopr Ratio
The SOPR Ratio is a valuable metric that provides insights into the behavior of long-term and short-term Bitcoin holders. We can calculate the SOPR Ratio by dividing long-term holders’ SOPR by short-term holders’ SOPR. So, using a 30-day moving average, we can observe that historically, the ratio has tended to range between 0.5 and 0.6 before rising again after a market bottom.
In November of last year, the SOPR ratio reached 0.57 when the price of Bitcoin was at 15790$, indicating that we may have already hit the market bottom and the worst price declines of this cycle could be behind us.
It is a positive signal for investors looking to enter the market or add to their existing Bitcoin holdings. However, it is critical to note that the crypto market is highly volatile, and investors should always exercise caution and do their own research.
Bitcoin To Mirror April-June 2019?
Based on historical patterns and the current market conditions, there are indications that Bitcoin may follow a similar trajectory from April 6, 2019 – June 26, 2019. The MVRV Ratio Index breached its 365-day MA on January 29, 2019, and the current MVRV behavior is strikingly similar to that seen between April 6 and April 25, 2019.
With these parameters, the Bitcoin price could hit $30,000-$37,000 by May or June 2023. But why can BTC get a respite until that time frame?
One factor to consider is the US Treasury’s failed plan to borrow $550B in Q4 2022, which ultimately led to the release of almost $200B into the market. It happened because the Fed slowed down retail activity (Treasuries and MBS) in December 2022.
A discrepancy between estimates and actual sales freed up nearly $200 billion into circulation. Since the US Treasury’s currency reserves are running low, this scenario cannot persist indefinitely; eventually, borrowing will be necessary.
Additionally, the above situation aligns with expectations that the US may enter a recession in May-June, potentially triggering negative global macro trends. It includes a deterioration in the stock market, in which Bitcoin may become a hostage, given its correlation with benchmark indices at critical moments.
As such, the present market mirroring the timeline of May-June 2019 could be a crucial turning point for the cryptocurrency market.
Future Of Fiat On-Ramps
The situation at Silvergate is dire. The “crypto bank” warned regulators on March 1 that it may soon be “less than well capitalized.” As a result of the report, many prominent cryptocurrency companies severed ties with Silvergate, including Coinbase, Paxos, Galaxy Digital, and others. But what’s the big deal, anyway? It’s been an issue for crypto markets to deal with the “fiat dilemma” for a long time. To purchase bitcoin, you must engage with the regular financial system at some point.
So, Silvergate overcame this problem by making it simple for crypto businesses to use conventional financial services. Exchanges, market makers, and investors extensively used Silvergate’s SEN instant payments network to transfer significant sums of U.S. currency quickly. By the end of 2022, the bank had 94 crypto exchange clients and over 890 institutional investors.
Without SEN, the cryptocurrency market could experience a decrease in liquidity as it would no longer have access to one of the few fiat payment channels. With Signature Bank now being one of the only financial options, rapidly deploying fiat capital via exchanges will be more difficult. Naturally, though, stablecoins provide another entry point to the decentralized world of crypto.
Since 2017, dollar-to-tether trade volume (for Bitcoin trading pairs) has accelerated from 3% to 92%, with its latest peak occurring after the FTX crash. With SEN no longer an option, stablecoins will likely gain even more traction in the trading community.
Instead of putting money into a CEX, you put it into a stablecoin issuer, get stablecoins, and then send those stablecoins to the Exchange. Unfortunately, stablecoin issuers still need to use a cryptocurrency bank, meaning the risk is even more centralized than before.
So, where do you see fiat currencies going in the future of cryptocurrency trading? With the rise of stablecoins, platforms worldwide have listed fewer new currency trading pairs. However, as the legal and financial climate in the United States becomes more hostile, opportunities may arise in Europe. The number of new trading combinations priced in dollars dropped from 400 to 326 in 2022 across all platforms, while the number denominated in euros rose from 96 to 165.
Although there is a window of opportunity with the euro, a larger narrative emerges when we examine the market share of volume of USD-denominated pairs: the waning use of the dollar in the crypto space.
Since the FTX debacle, the USD market share has steadily declined compared to the USDT, USDC, and euro trading pairs. Although the dollar and dollar-pegged stablecoins currently serve as the backbone of the crypto economy, increasing challenges with USD payment channels could eventually cause this tendency to shift.
Funding Rate And The Market
Market sentiment can often be deduced from the funding rate of perpetual futures, prompting traders to take on short positions. This rate indicates whether traders are bullish or bearish on the price of Bitcoin and can be used to anticipate market movement.
The hourly values haven’t been that negative since December 2022, when Bitcoin traded for around $6,000. Looking closely, we can also see all the periods this year when the bulk of the market was betting on a decline, typically on local floors.
It occurs due to the contrary aspect of the common market bias. Typically, when traders use high leverage in the futures market to gamble on a directional bias, any significant opposite shift in price results in a squeeze. This scenario has the potential for a price rebound pushed by cascading shorts liquidations if leverage expansion and negative bets continue.
Optimistic Narrative On The Way?
On-chain statistics showed that holders of Bitcoin are still in profit despite the temporary dip in price on March 3rd and the failure to recover the $25,000 level last month. Santiment data show that BTC’s Market Value to Realized Value ratio (MVRV) is still in the bullish range. A positive MVRV ratio for an asset indicates that, on average, investors would make twice as much money by selling their holdings at the current price.
Even though Bitcoin’s 2023 progress may have slowed down around the middle of February and many obstacles still exist, there are encouraging indications that the market is ready to transition out of the deepest phase of the bear market.
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Investing in bitcoin is no longer profitable, although I admit that for the average player, the best strategy for investing in bitcoin is to acquire it for many years, perhaps even decades. Although I think it’s better to invest in privacy coins. Personally, I invest in privacy coins such as Monero and Сrypton from the UtopiaP2P ecosystem. They have a great crypto community, which is a plus when choosing cryptocurrencies.