Today’s Must-Read: Decrypting the Current Crypto Chaos
Our Emergency Q&A to Make Sense of the Uncertainty
We heard you loud and clear. Today, we're launching a special edition of our newsletter to give you a Q&A guide that covers everything you wanted to know about the current crypto and macro environment. We will continue next week with our regular newsletter format.
Market Review
Wow, what a week! Bitcoin had a massive surge up to 26k, but unfortunately, it didn't stay there. We feel like we aged three years in just one week.
Last week we saw a strong bounce back for both Bitcoin and Ethereum after the entire market crashed due to the US banking crisis and the USDC depeg that followed. Bitcoin is trading now at 24,730$ just short of the resistance area around 25k that we mentioned last week and Ethereum is trading at 1,650$.
Once again we saw how quickly things can turn around and within a day or two, we saw Bitcoin at the brink of breaking down towards previous lows, only to turn around and break 26k a few hours later. The move to the upside was fueled by announcements from the FED to bail out banks and insert two trillion USD into the banking system. It is basically quantitative easing (QE - the monetary policy that brought us the last bull market) again, but nobody will say that out loud. So we will call it ‘stealth QE’. We expect more banks to fail in the next weeks and months (looking at you Credit Suisse), however, we also see already a new narrative on the horizon: Bitcoin as the safe heaven when you can’t trust no banks (sounds oddly familiar to Satoshis vision from back in the days). So let’s see how this plays out, in any case, interesting times ahead.
Our overall market analysis is rather straightforward. A clear break of the 25k area (with one or more daily closes) will send us towards 28.5-30k. On the downside, 24k should hold, otherwise, we could revisit the previous lows. Just be aware that the markets are easy to spook currently and any announcement by the FED can result in drastic movements to either side.
Our expectation remains that we will still test the previous lows in the next months, however, continue this current run towards 28-30k in the coming weeks. We love this current volatility as we can dollar-cost average into the markets and just make sure we are prepared for better times to come.
What else happened this week:
The ECB just announced a raise in interest rates by 0.5pts to 3.0%. This could also be a hint that we won’t see a slowdown in hikes by the FED in the US
Arbitrum will launch its token in exactly one week and you can check whether you qualify for an airdrop here.
Today’s Must-Read: Decrypting the Current Crypto Chaos
Our Emergency Q&A Guide to Make Sense of the Uncertainty
You asked - we delivered! We've done the hard work and put in hours of research to compile everything you need to know short and sharp.
Q: What’s happening with US banks right now?
The US banking sector is facing a huge crisis after two major banks collapsed last week and multiple others are on the verge of failure. Silicon Valley Bank (SVB) and Signature Bank were both shut down by regulators on March 10 and 12 respectively, after they suffered massive losses in the bond market due to rising interest rates. The bond market losses eroded their capital and triggered a bank run, where customers rushed to withdraw their funds all at once (sounds like UST, doesn’t it). Another bank, First Republic Bank, was also under pressure from depositors and regulators but managed to secure a bailout from (a.o.) JPMorgan Chase on March 14.
It seems clear that we have not seen the end of this yet and the crisis seems to also impact EU banks now. Credit Suisse is also suffering huge losses on the stock markets and is by far bigger than the two US banks mentioned above. Their issues come more from years of mismanagement, instead of being linked to interest rates, but the outcome could be similar.
Q: How do the recent bankruptcies impact the crypto market?
A: Just looking at the direct impact on the crypto space, it brings chaos, banking issues & further regulations. All of that is really bad for the price (in the short to mid-term at least). SVB was one of the largest crypto-friendly banks in the US and it can be argued that its closure was also aimed at the crypto industry directly. It takes away a major offramp for users and will make crypto less user-friendly going forward. Unfortunately, that will be only the beginning most likely and further regulations from US government side will come to further tighten the FED grip on the crypto markets.
Lastly, it has wider economic impacts that naturally also impact crypto markets. On the upside, further money injections to bailout banks and even a return to (secret) QE might have positive effects on risk assets like crypto in the short term. In the long term, however, this injection of capital lead to more inflation and we expect it to haunt the FED (and us) again in a few months (or even years).
Q: Why did USDC depeg?
A: USDC depegged from $1, because Circle - the issuer of USDC - confirmed that $3.3 billion of its reserves were held at Silicon Valley Bank (SVB), which collapsed on March 10. This caused a liquidity crisis for USDC and a loss of confidence among its users. While it became quickly clear that the hole at SVB won’t be that impactful, the lack of communication from Circle and Coinbase (who is a co-issuer of USDC) and the fact it was weekend (and therefore a bank holiday) did not ease investors and led to rumors, speculations and therefore a drastic deviation from the 1$ peg.
Q: What stablecoins, if any, are currently considered safe?
A: We can't confidently say that stablecoins are safe at this time. Each option seems to have its own set of downsides:
Although USDC is still considered one of the safest stablecoins because it is fully backed by audited reserves, it's unreasonable to call it safe due to the recent de-peg. The government intervened to help retrieve the reserves and re-peg USDC, but we still have concerns. If Circle (issuer of USDC) takes measures to ensure their reserves are kept in less risky banks in the future, it would be the safest choice for us.
USDT is basically a black box. Nobody really knows what is backing it and therefore we can’t recommend it, even though it kept its peg in recent weeks. The picture below summarizes it quite well...
BUSD, which is issued by Paxos, recently terminated its partnership with Binance for its branded stablecoin. Nonetheless, BUSD is still completely backed by Paxos and can be redeemed at a 1:1 ratio to USD until at least February 2024. The fact that BUSD will phase out and that there is an additional focus from regulators on Binance raises concerns about BUSD as well.
Algorithmic stablecoins like FRAX could be a solution but most of them come with their own issues. The most popular (partly) algorithmic stablecoin, FRAX, is mostly backed by USDC at this moment. That will change in the future, but for now, holding FRAX over USDC adds additional risk.
Soooo, nothing is safe? Unfortunately, that is somewhat true these days. Johnny's thread on the same issues also covers the same topic in a bit more detail if you feel like getting into it:
Q: So, no stable is safe - what should I do?
A: The safest option is likely to keep your money with a regulated bank and stay below the insurance levels of 250k for US and 100k for EU to be insured in case of further bank failures.
Next recommendation is to diversify a bit. Keep some money on reputable exchanges like Kraken (and place some stink bids), keep some in USDC and even some USDT if you feel funny this morning.
Q: CZ - the CEO of Binance - is converting BUSD to Bitcoin, Ethereum, and BNB. Is this bullish or bearish for crypto?
A: The Industry Recovery Initiative is a $1 billion fund launched by Binance to help crypto companies that are facing liquidity crises or other difficulties after the collapse of FTX. The fact that CZ wants to switch the funds from BUSD into BTC, ETH, and BNB is, in the short term, rather bullish. Furthermore, transferring these funds on-chain increases transparency, and as people wait for some activity on the Binance side, they are waiting and likely to get ready to buy, potentially driving the price up even further.
Q: Is right now a good time to buy or sell crypto?
A: We advise you to be careful at the moment - it's a wild market and there's a lot of uncertainty. Don't just blindly jump into short-term trends driven by FOMO and the recent pump. Instead, take it easy, identify price levels you're comfortable with, and be ready for big price swings. It's a good idea to invest slowly in long-term positions and hold onto them until the market improves. Check out our previous newsletter for more info on how to do this.
Next week we will be back with our regular newsletter format to give you a step-by-step guide on what to do before pressing that tempting green button.
Be safe!
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