CRYPTO week ahead: March 20 – 26Last week in the news
Second week on financial markets as a game of nerves. This time, banks were in the center of the game. Too-high-too-fast monetary tightening is reflecting into squeezed banking liquidity, both within the US and some European banks. The US equity markets were closed in red on Friday amid new potential banking contingencies. On the other hand, the crypto market gained significantly during the previous week, but the question is whether it was on healthy grounds? Bitcoin is ending the week around $27K, Ether around $1.750.
Last week brought a series of unfortunate events within the banking sector in both the US and Switzerland. The Silicon Valley Bank collapsed over the significant run off of depositors. The bank tried to attain liquidity through liquidation of $21 billion of Treasury bonds, with $1.8 billion in losses, however, it was not enough. The deposits were insured with Federal Deposit Insurance Corporation but only to the level of $250K per depositor. What will happen with the rest of deposited funds in this bank, it is unclear at this moment. Signature bank was also closed, in the meantime. Currently, another troubled US bank, the First Republic Bank, tried to be saved by 11 other banks which lend $30 billion to First Republic for 2 months, however, at the end of the week there has been news that this amount would not be enough to secure liquidity. Shares of the bank were down by 30%, decreasing possibility of a sale of the bank at a decent price.
Europe also had a busy banking week, with Credit Suisse, a Switzerland based bank, as a main player. The bank was struggling with its business and several scandals within the last two years, however, during the previous week it all collided into a final liquidity squeeze. The bank was not able to secure additional capital, so, at the end, the Swiss National Bank entered into the playfield, by supporting the bank with $50 billion. As per initial information it should help the bank to pass through the current difficult time, but it seems rather like a short assistance until the bank finds a buyer. Bloomberg had reported that the largest Swiss bank, UBS, is in talks of possible takeover of a part of Credit Suisse`s business.
Despite the general banking crisis in the Western countries, the ECB raised its interest rates during the previous week by additional 50 bps. As per ECB president Lagarde, the ECB will probably continue with rate increases, until the inflation is finally on the road to targeted 2%. On the other hand, a FOMC meeting will be held during the week ahead, where it is expected that the FED will continue with its rate increases by 25 bps. The markets are now anticipating first rate cuts as of the end of this year.
On the other side of the globe, the People Bank of China announced a cut of the reserve requirements for banks by 25 basis points. The aim of such a decision is to allow banks in China to secure enough liquidity to support economic recovery in the country. After severe lockdowns during the previous period, the authorities in China set a target of 5% economic growth for this year.
Crypto market cap
Certainly, the previous week was another one with a game of nerves on financial markets. The crypto market gained significantly, but it was not at all a healthy surge. It was mostly supported by people who were transferring their funds from banks to the “safer” place like crypto currencies. Before the crypto market was invented, in such situations like a banking crisis, investors would pull their money into gold and other metals, but this time was different. The price of gold did make a gain, but not as high as the crypto market has. Some crypto enthusiasts are arguing that it is exactly why crypto currencies were made – to bring freedom from government control and bad banks. It might be on a metaphysical level, but the current truth is somewhere in the gray zone, which means that governments are slowly gaining some control over the crypto market, which we have seen during the previous period. Here we also need to take into account a high speculative capital on the market, which is trying to gain as much as possible from the latest developments. Overall, no matter how good the latest surge in the price of crypto coins is, still on a long run, it increases the risks of a run-off from the market when the current banking crisis resolves. In this sense, it is still early for a “told you so” moment for crypto enthusiasts.
Total crypto market capitalization has increased by 23% on a weekly basis, reaching for another time this year levels above $1 trillion. Daily trading volumes remained at modestly higher levels, moving between $160B, down to $ $135B on a daily basis. Interestingly, trading volumes were lower from the week before, when the market traded around $170B on a daily level. Total crypto market capitalization surged to a 49% increase since the beginning of this year, adding total $368B to the market cap.
Significant increase in the market cap during the previous week was led by the BTC with a gain of total $136B in the market cap, increasing its value by almost 35% within a single week. ETH also managed to attract investors with an increase of $42B, which is a surge of 23.5% from the week before. In the group of significant gainers in the nominal terms belongs also BNB which surged its market cap by almost $10B or 22.7% on a weekly basis. Tether was another coin worth mentioning, as it has added $3.6B to its market cap and increasing number of circulating coins by 5.7%. Majority of altcoins gained in relative terms around 20% with only a few coins which added less than 10% to their market cap. After many weeks with continuous increase of circulating coins, during the previous week Filecoin pointed to a decrease of 2.3%.
Crypto futures market
The crypto futures market reacted to developments on the spot market and increased prices of futures accordingly. All maturities gained in price, however, what is symptomatic is that the maturities price curve took again an inverted shape. Short term futures are again higher in prices from the longer term one for both BTC and ETH coins. It seems that investors are still not convinced that current macroeconomic developments would be reflected in increased prices of coins in the future period.
BTC short term futures were traded around 35% higher from the week before, while long term futures were up by around 25%. BTC maturities in December this year finished the week at level of $25.720, while those maturing in December 2024 were traded at price of $26.590.
ETH short term futures were up by 23% w/w, while the long term ones were up by more than 19%. ETH futures that mature in December this year ended the week at level of $1.717, while those maturing in December next year were traded at price of $1.750.
