Bank failures trigger turmoil in the digital asset market

Recently, the digital asset industry experienced the most influential week of 2023. Within just a few days, three major banks serving the crypto industry in the United States found themselves in trouble one after another. This series of events had a significant impact on the digital asset market.

In early March, SilverGate announced a voluntary and orderly liquidation, promising to fully return depositor funds. Shortly thereafter, the 16th largest bank in the United States, Silicon Valley Bank, was taken over by the Federal Deposit Insurance Corporation, becoming the second largest bank failure in U.S. history. Subsequently, New York's Signature Bank was also closed. It is expected that the deposits of these banks will be fully reimbursed through the reserves they hold or guarantees from regulatory agencies.

These events have raised concerns in the market regarding stablecoins. The issuer of USDC, Circle, disclosed that it held approximately $3.3 billion in cash at Silicon Valley Bank, causing USDC to temporarily lose its peg to the dollar. Other stablecoins like DAI were also affected, while Tether experienced premium trading, being seen as a safe haven.

The market response is reflected in the following aspects:

1. Changes in the stablecoin market landscape: Tether's market dominance has risen to over 57.8%, while the shares of USDC and BUSD have declined.

2. Capital Flow: Last month, the market experienced a net outflow of approximately $5.97 billion, with 80% coming from stablecoin redemptions and 20% from realized losses in BTC and ETH.

3. Fund flow on trading platforms: Investors tend to withdraw BTC and ETH from trading platforms while depositing stablecoins into the platform, reflecting a preference for self-custody trustless assets.

4. Futures market changes: The total open interest of BTC and ETH has dropped to a cyclical low, but trading volume has rebounded. The market has experienced a series of liquidations of long and short positions.

5. Price Trend: The price of Bitcoin rebounded near the 200-day and 111-day moving averages, marking the first time in history that the BTC trading price fell below the 200-week moving average.

Despite the challenges, these events also highlight Satoshi Nakamoto's original intention to create a trustless scarce digital asset. The digital asset market is adapting to this new environment, and investor behavior reflects a focus on decentralization and self-custody. As the situation continues to evolve, market participants will closely monitor changes in the regulatory environment and their potential impact on the industry.