Week ahead: Crypto markets stay flat after Silvergate crisis, an opportunity in disguise or troubled waters?

Cryptocurrency markets saw a sudden sell-off on March 2 as a slew of companies, including Coinbase, Paxos, Galaxy and others, dropped Silvergate as their banking partner. As a result, the banking giant’s stock price fell by 66% between March 1 and March 3.

As Bitcoin and Ethereum price trade aimlessly, there is no directional bias whatsoever for the general cryptocurrency markets after the Silvergate crisis. While looking at this event through a keyhole might reveal an obvious bearish outlook, taking a step back shows that this nosedive could potentially have an unintended yet bullish effect on the crypto markets for the long term.

Also read: First mover Asia: Bitcoin is stuck between Silvergate and China

Crypto markets disconnect from traditional

Due to the Silvergate fiasco, things have changed drastically for Bitcoin and the general crypto markets. There has been a significant drop in correlation to traditional instruments such as the S&P500 or Nasdaq 100, as noted in a previous article. 

The S&P500 has yielded 2.55% since March 2, while BTC has shed -4.10%. 

The short-term bearish outlook will trump the long-term narrative if this correlation stays at or below zero. That would imply the reduction of the impact that the US Dollar dynamics and, thus, the Federal Reserve policies have on Bitcoin price. 

Such a development would provide Bitcoin price its freedom to move on its own and carve out its own path. From an optimist’s standpoint, this disconnect could catalyze a run-up if fundamentals are positive, increasing the chances of triggering a bull run.

BTC vs. S&P500 performance chart

A tumultuous week ahead for Bitcoin and Ether

Pipe dreams aside, one has to address the serious question – will this drop in correlation sustain in the coming days?

There are two key events this week that will allow us to track it:

1. Fed Chairman Jerome Powell’s testimony on March 7 at 15:00 GMT.
2. Nonfarm Payrolls (NFP) release on March 10 at 13:30 GMT.

Powell’s testimony will be closely observed, and if dovish, it could trigger a rally in the risk-on markets. If Bitcoin price recovers in this scenario, it would bring back the aforementioned correlation.

However, a hawkish stance due to the unusually high spike in the last jobs report could bring about a risk-off environment, triggering traditional markets to tank. Even in this case, if Bitcoin price accompanies stock markets down, the correlation would be back.

Also read: Bitcoin price could slip below $20,000 if Powell backtracks his comment

Additionally, swaying this decision will the Non-Farm Payrolls (NFP) release. The last four reports have come in hotter-than-expected, but only two of them have caused a sustained bearish move in Bitcoin price by supporting the US Dollar on hot labor market statistics from the United States. The Federal Reserve has more room to hike interest rates on full employment scenarios.

So, the next NFP should also be key in determining the directional bias for the crypto markets.

Also read: A crypto beginner’s guide to Nonfarm Payrolls and its effects on BTC

Trouble in crypto land or opportunity?

While the macroeconomic conditions remain uncertain, there is speculation that something fishy is going on with the US banking platform Silvergate. Coinbase, Galaxy, Paxos and other crypto platforms decided to drop Silvergate as their partner, which caused the banking giant’s stock to shed 66% between March 1 and 3. As a result, the crypto markets also collapsed, triggering liquidations of $235 million worth of positions on March 2.  

Additionally, the netflow of stablecoin to exchanges saw a spike of $1.37 billion on March 5, denoting the third largest uptick in the last three months. Such an unusual increase in stablecoins on exchanges could be indicative of smart money looking to take advantage of the current market conditions. 

Also read: Stablecoin inflows hit record highs for 2023, is this a buy signal?

Stablecoin exchange netflow chart

Bitcoin price looks undecisive after the March 2 crash and is yet to be seen if it will recover the losses fully and trigger a rally or create a dead cat bounce before crashing even lower.

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