Bitcoin (BTC) refused to let $20,000 support die for good on March 11 as the weekend opened with a battle for lost ground.
Bitcoin shakes up USDC depeg
Data from Cointelegraph Markets Pro and TradingView showed BTC/USD hovering around $20,200 at the time of writing.
A brief dip below $20,000 overnight was short-lived, and the mood appeared more stable as the initial panic over the stability of US banks subsided.
The Silicon Valley Bank (SVB) collapse, which followed Silvergate in dealing another blow to some crypto firms, nevertheless continued to happen.
At the heart of the debacle was payment technology company Circle, which revealed overnight that it held some of the reserve funds for its stablecoin, USD Coin (USDC), with SVB.
The USDC immediately began to slide from its peg to the US dollar and was redeemable at the time of writing for just $0.91. At one point, Bitcoin was worth over $26,000 in USDC terms on the major exchange Kraken.
“If USDC is only 90% backed, the equilibrium price is NOT $0.90. The equilibrium price is ZERO,” Cory Klippsten, CEO of Swan Bitcoin, reactedadd:
“Everyone is incentivized to trade ASAP for $1. You don’t want to be in the bottom 10%, with all the money already gone.”
Others thought the situation was manageable and that USDC, the second-largest stablecoin by market capitalization, would not fail completely.
2/ The worst has already happened
We now know that 8.2% ($3.3 billion out of $40 billion) is currently locked up in SVB, but that doesn’t mean the money is gone.
As Adam pointed out, in a similar FDIC recovery process, we can expect a 94% payout.
The damage could therefore amount to approximately 198 million US dollars. https://t.co/xvshlKuCmZ
— Ignatius | DeFi Research (@DefiIgnas) March 11, 2023
In a TweeterCircle said it has five other banking partners to manage its USDC cash reserves.
Funding Rates Mimic FTX Mood
Beyond USDC, traders’ nerves remained predictable.
Related: Circle’s USDC instability causes domino effect on DAI and USDD stablecoins
Average funding rates were at their most negative since the aftermath of FTX in November 2022, indicating strong belief that further losses could still impact Bitcoin.
However, analyzing the implications, commentator Tedtalksmacro argued that an overwhelming bearish bias could fuel a classic “short squeeze” on the upside on BTC/USD.
“The market is still very short here. And this could provide fuel for BTC to test at least 21.4k in the short term,” part of a tweet read.
Tedtalksmacro added that a squeeze is already “well underway” based on Bitcoin’s rebound from multi-week lows below $20,000.
Other popular market players favored a short-term bearish return.
“Amid today’s splurge, Bitcoin remains strong. I expect another drop towards the interim support zone around $19,200,” Crypto Tony said followers.
The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.