The crypto market volatility caused by the collapse of Silicon Valley Bank has (momentarily) pushed BTC price to $50k, with some coins left behind.
The cryptocurrency market has witnessed yet another volatile event as the USD Coin (USDC) depegged from the U.S. dollar, causing panic and a flash spike on Binance. On March 12, the BTC/USDC pair on Binance suddenly spiked to $50,000 for several minutes, leading to traders losing $50,000 per Bitcoin. Although the trading price quickly returned to around $22,000, this incident has raised concerns about the stability of the cryptocurrency market.
“Fat Finger” Trade Causes Bitcoin Price Surge
The reason for the sudden impulse spike of the BTC/USDC pair on Binance is still unknown. However, it is likely due to a “fat finger” trade of a large order. The thin order books for the newly launched BTC-USDC pair on Binance may have also contributed to the flash spike. According to a trader on Crypto Twitter, a Bitcoin market order may have eaten through the limit sell-orders on the pair up to $50,000, causing the price to surge temporarily.
Flash Crashes and Spikes in Cryptocurrency Exchanges
Flash crashes and spikes are not new to the cryptocurrency market. Multiple exchanges have experienced similar incidents in the past, resulting in angry customers and refund requests. In August 2017, a flash crash on GDAX caused Ether prices to plummet to as low as $0.1 due to a customer error, with Ether trading around $300 at the time. These events show that the cryptocurrency market is still highly volatile and prone to sudden fluctuations.
USDC Depeg Leads to Unstable Trading Pairs
The USDC stablecoin‘s value dropped to as low as $0.87 on March 11 after Circle, the issuer of USDC, revealed its $3.3 billion exposure to the defunct U.S. bank, Silicon Valley Bank. Since then, USDC trading pairs have been unstable on other exchanges, and the BTC/USDC pair on Kraken also spiked to over $26,000 on March 11 due to fears about the collapse of USDC. The panic around USDC’s stability has caused serious volatility in the cryptocurrency market, leading to concerns about the long-term prospects of cryptocurrencies.
US Government Bailout Restores Market Confidence
The fears around USDC’s stability amplified over the weekend, creating uncertainty around the fate of depositors of the SVB bank. However, the U.S. Treasury, Federal Reserve, and FDIC decided to bail out the customers of SVB and Signature Bank but not the shareholders and other stakeholders. This decision has restored the market’s confidence for the time being. However, it remains to be seen how stable the cryptocurrency market will be in the long run, especially with increasing regulatory scrutiny and the emergence of new cryptocurrencies.
The flash spike caused by USDC’s depeg from the U.S. dollar and the subsequent panic in the cryptocurrency market highlights the need for better stability and regulation in the industry. Although the market has witnessed similar incidents in the past, these events indicate the risks associated with investing in cryptocurrencies. As the cryptocurrency market continues to evolve, it will be important for investors and regulators to work together to ensure the long-term sustainability of cryptocurrencies like Bitcoin.