The digital asset industry suffers a heavy blow, Bitcoin becomes a safe haven

After experiencing the most influential week of 2023, the digital asset industry has lost three cryptocurrency-friendly banking institutions in the United States. However, so far, the main reaction from investors seems to be shifting towards Bitcoin and Ethereum, the two major assets that rely the least on trust, in search of safety.

Last week became the fastest and most impactful week in the digital asset sector this year. In just a few days, three major U.S. banks servicing the cryptocurrency industry entered voluntary liquidation or were taken over by regulators.

SilverGate announced on March 8 that it would voluntarily liquidate in an orderly manner and fully return customer funds. The 16th largest bank in the U.S., Silicon Valley Bank, was taken over by the Federal Deposit Insurance Corporation on March 12, becoming the second largest bank failure in U.S. history. New York's Signature Bank was also closed on March 12.

It is expected that these three banking institutions will return all deposits through the reserves or deposits they hold. The weekend market was unstable due to many large digital asset companies and stablecoin issuers using these banks. It is noteworthy that the USDC issuer Circle holds about $3.3 billion in cash at SVB, which temporarily caused USDC to deviate from its peg to $1.

This article will focus on several key influences in the on-chain and broader market structure.

1. Multiple stablecoins deviate from the 1 dollar peg, Tether(USDT) regains dominance.

2. The digital asset market has seen a net capital outflow, which can be observed in both stablecoins and mainstream coins.

3. Despite the increase in trading volume, futures open interest still reached a cyclical low. Speculative interest drove Bitcoin to rebound to $22,000, while Ethereum recovered to $1,600.

4. The price of Bitcoin trades between several widely watched technical analysis pricing models. After encountering resistance around $25,000 near the 200-week and 365-day moving averages in February, it touched the 200-day and 111-day moving averages around $19,800 this week before rebounding.

It is worth noting that this is the first time in history that the Bitcoin trading price has fallen below the 200-week moving average, and from this perspective, the market is in uncharted territory.

Since the collapse of the LUNA-UST project, this week saw the first fluctuations in stablecoin prices, due to market concerns about USDC losing some of its backing. USDC fell to a low of $0.88, followed closely by DAI which dropped to $0.89, the latter being supported by about 65.7% in stablecoin collateral. Additionally, GUSD and USDP were slightly below the $1 peg, while BUSD and Tether experienced premium trading.

Especially Tether, which has been trading at a premium of $1.01 to $1.03 for most of the weekend. Ironically, in the context of concerns that the strictly regulated U.S. banking industry could trigger wider repercussions, Tether has been seen as a safe haven.

In terms of DAI, stablecoins have become its main form of collateral, a trend that has been ongoing since mid-2020. USDC accounts for about 55.5% of direct collateral and also holds a significant share in various Uniswap liquidity positions, totaling approximately 63% of all collateral.

This event has undoubtedly sparked discussions about the long-term impact of DAI. DAI claims to be a decentralized stablecoin, but this incident has proven that its price is closely related to the collateral composition and the traditional banking system.

Tether's dominance in the stablecoin market has been structurally declining since mid-2020. However, with recent regulatory actions against BUSD and concerns related to USDC this week, Tether's dominance has rebounded to over 57.8%.

USDC has maintained a dominant position of 30% to 33% since October 2022, but it remains to be seen whether supply will decrease as the redemption window reopened on Monday. BUSD has sharply declined in recent months, with issuer Paxos halting new minting, and its dominance has dropped from 16.6% in November to 6.8% today.

Estimating the real capital flow in the digital asset market is quite tricky, but generally, capital initially flows in through the two major assets (BTC and ETH) or stablecoins. Therefore, the realized cap of BTC and ETH combined with the circulating supply of major stablecoins provides a fairly robust measure.

Through this method, we can see that the total market value is approximately $677 billion, down about 20% from the historical high of $851 billion a year ago. The dominance of BTC is 56.4%, ETH is 24.5%, USDT, USDC, and BUSD account for 17.9%, and the remaining 1.2% is LTC.

Based on the 30-day change, February marked the first net inflow of funds since April 2022, peaking at $5.8 billion/month, primarily led by BTC and ETH. However, last month the market saw a reversal outflow of $5.97 billion, with 80% resulting from stablecoin redemptions, primarily BUSD(, and 20% coming from realized losses in BTC and ETH.

![Glassnode: The turbulence in traditional financial markets has prompted Bitcoin to experience a "V-shaped" reversal])https://img-cdn.gateio.im/webp-social/moments-d3f77c21427f3bbdfec0b03e17265f26.webp(

As news of the Silicon Valley Bank's collapse spreads, investors are flocking to BTC and ETH in search of refuge. Significant outflows of funds have been observed across various trading platforms, with approximately 0.144% of BTC and 0.325% of circulating ETH being withdrawn from trading platform reserves, indicating a self-custody reaction pattern similar to that following the FTX collapse.

Last month, the total value of BTC and ETH that flowed out of trading platforms exceeded 1.8 billion USD. Although the scale is relatively small, in the current hostile regulatory environment, the observation of net withdrawals from trading platforms indeed reflects the level of investor confidence, which is worth noting.

![Glassnode: The turbulence in traditional financial markets prompts Bitcoin to undergo a "V-shaped" reversal])https://img-cdn.gateio.im/webp-social/moments-d8683fcbf9a9822f5aba5910c6bff2da.webp(

On the other hand, the two major stablecoins see a net inflow to trading platforms of between $1.8 billion to $2.3 billion per month. It is worth noting that BUSD is flowing out of trading platforms at an astonishing rate of $6.8 billion per month, largely offsetting the aforementioned inflows. Therefore, a certain degree of "stablecoin conversion" may be occurring.

Overall, this seems to be the market's reaction to stablecoins, BTC, and ETH, reflecting a clear preference for trustless asset self-custody.

![Glassnode: The turbulence in traditional financial markets has prompted Bitcoin to experience a "V-shaped" reversal])https://img-cdn.gateio.im/webp-social/moments-c87034ac0fd0cf08499c1187fb5f03be.webp(

In the futures market, this week the total open interest of the two main assets has fallen to a cyclical multi-year low. The nominal value of Bitcoin futures positions is $7.75 billion, accounting for about 63% of the total open interest.

Bitcoin's dominant position in futures trading volume is similar, around 60%, and has recovered after the FTX incident and the lull at the end of the year. The total trading volume is approximately $58.2 billion/day, equivalent to the level for the entire year of 2022.

![Glassnode: The turbulence in traditional financial markets prompts Bitcoin to experience a "V-shaped" reversal])https://img-cdn.gateio.im/webp-social/moments-ec240996282ce779ed0d5034fe3eca56.webp(

This week's price volatility is partly due to a series of long and short positions being squeezed. When the price was sold down to $19,800, approximately $85 million in BTC long positions were liquidated. Subsequently, as the price rebounded above $22,000, about $19 million in short positions were liquidated.

![Glassnode: The turbulence in traditional financial markets prompts Bitcoin to experience a "V-shaped" reversal])https://img-cdn.gateio.im/webp-social/moments-ecd1d95f731cc4eae05d5dc6050c018d.webp(

Before this rebound, the funding rates in the perpetual swap market entered extreme spot premium levels. Traders paid annualized funding rates of -27.1% and -48.9% to short BTC and ETH, respectively. The intensity of traders shorting ETH is also much greater, with the BTC:ETH spread reaching 21.8%, the highest level since the FTX sell-off.

![Glassnode: The turbulence in traditional financial markets has prompted Bitcoin to experience a "V-shaped" reversal])https://img-cdn.gateio.im/webp-social/moments-46d62e7152a29e1cc8f5e29bbc5eea99.webp(

This exacerbated the liquidation in the ETH futures market. Over $48 million of short positions were liquidated when the market rebounded above $1600, meaning that the notional value of forced liquidations was 2.5 times higher compared to BTC. This indicates that the ETH market has recently been used more to express speculative interest, intensifying volatility.

![Glassnode: The turmoil in traditional financial markets prompts Bitcoin to experience a "V-shaped" reversal])https://img-cdn.gateio.im/webp-social/moments-d5dc66720d6ebd7fa4ca92715b452a79.webp(

Overall, this week has reinforced the reasons why Satoshi Nakamoto initially created a trustless scarce digital asset in many ways. The digital asset industry and even the global financial system are still in uncharted waters, and future developments will require ongoing attention.