Week Ahead: Crypto markets reel from the banking crisis as investors prepare for US CPI
- Crypto markets seem to be pulling a 180 after the Fed announced a relief package for customers who lost money in the recent banking crisis.
- The ripple effect of the ongoing collapse in the US banks could trigger a panic selling if US CPI comes in hotter than expected.
- ApeCoin and dYdX are two altcoins that are likely to face a massive sell-off this week.
Things are getting really dicey out here as the United States Federal Reserve’s move to cover Silicon Valley Bank (SVB) puts the US regulators in the spotlight. This week is important due to a few things happening in the macroeconomic landscape.
Banking and stablecoin crisis: A recap of the past few weeks
- To be fair, the whole FUD started with the US Securities and Exchange Commission went after US-based stablecoin issuer Paxos.
- Following this was the collapse of Silvergate bank after an en-masse exodus of the company’s crypto customers decided to just up and leave.
- Following the collapse of Silvergate was Silicon Valley Bank, the fallout from which was widespread. It also caused US-based USDC Stablecoin issuer Circle to have $3.3 billion in cash reserves stuck at the bank.
- Soon thereafter, Federal Deposit Insurance Corporation (FDIC) issued a statement to shut down Signature Bank, stating systemic risks.
Interestingly enough, Bitcoin price dropped 10% between March 9 and 10 but recovered all the losses in the next two days.
US CPI and why longing Bitcoin now could be a bad idea
The Fed seems to have placed a backstop and assured the customers a full recovery of the funds stuck in these banks. This development has caused crypto markets to prevent a further collapse and instead undid the losses witnessed over the weekend.
While the short-term spike may seem enticing, investors need to note the United States Consumer Price Index (CPI) is set to be released on March 14. In his recent testimony, Fed Chairman Jerome Powell noted that curbing inflation was much harder than previously anticipated. Higher-than-expected CPI numbers could trigger a rally for US Dollar, causing the risk-on assets to collapse.
So, market participants need to wait before getting on board the hype train.
Also read: Fed Chair Powell targets bringing inflation back to 2%, Bitcoin price stays around $22,000
Token unlocks
With the markets in uncertain conditions, altcoins provided a respite for traders due to their inherent volatility. This week, two major cryptocurrencies will be unlocking their tokens – Decentralized exchange dYdX and ApeCoin on March 14 and March 17, respectively.
dYdX will be releasing 6.52 million tokens worth nearly 14 million. 2.8 million will go toward trading rewards, and 2.5 million will be redirected to the community treasury. The remaining 115K tokens will be distributed among liquidity providers as rewards.
Despite this large-scale unlock, roughly 1.7 billion or 79% of the tokens, will remain locked.
As for ApeCoin, roughly 40.6 million APE tokens worth $175 million will flood the markets in three days. Out of which, 4.1 million will go Yuga Labs, and 2.2 million will be sent to Yuga Labs founders.
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Important reads
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Coinbase assures recovery of customer funds, as Circle mints $407 million USDC
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Author
Akash Girimath
FXStreet
Akash Girimath is a Mechanical Engineer interested in the chaos of the financial markets. Trying to make sense of this convoluted yet fascinating space, he switched his engineering job to become a crypto reporter and analyst.
