Crypto volatility back to FTX levels, with $791 million of liquidations in 4 days as SVB collapse rocks market

Key Takeaways

• Crypto volatility is back up to levels last seen when FTX collapsed in November
• $791 million of liquidations rocked investors between Thursday and Sunday
• $383 million of longs were liquidated on Thursday and Friday, the largest 48-hour number of the year
• News that deposits will be made whole at SVB propelled the market upwards late on Sunday, with $150 million of short sellers liquidated as Bitcoin retook $22,000
• Despite Fed move stablising prices and 2023 showing a bounceback, the long-term implications for the crypto market are negative here and should concern investors

For once, it’s not crypto doing the collapsing. Trad-fi was feeling left out of the party, evidently, as the banking sector wobbled in a big way this weekend. 

Silicon Valley Bank (SVB) is no more, in what amounts to the largest collapse of a US bank since 2008, when Lehman Brothers pulled its best Satoshi Nakamoto impression and disappeared into the ether (pun not intended). 

While the drama may have centred in trad-fi, crypto bounced around aggressively over the weekend as a variety of knock-on effects rumbled. SVB was a crypto-friendly bank, as was Silvergate, which was announced to also be winding down last night. 

This, as well as the fact that the entire financial markets wobbled, meant crypto faced a storm. We have dug into some of the movements here at https://coinjournal.net/ to sum up the carnage. 

Liquidations 

With violent price swings, liquidations were inevitable. Longs got caught out badly on Thursday and Friday, as the Bitcoin price fell south of $20,000. 

There were $249 million of long liquidations across exchanges on Thursday, with Friday bringing an additional $134 million. The $383 million of long liquidations was the most in any 48 hour period this year. 

Volatility

Obviously, liquidations stem from volatility. Looking at Bitcoin to dissect the extent of the movements, the volatility is now back up to levels last seen when FTX collapsed in November. 

The chart below shows that the metric had been rising steadily, before SVB going poof kicked it back up to a mark 3-Day volatility mark of 50%, last seen when Sam Bankman-Fried’s fun and games were revealed to the public.

“We have been seeing relatively muted action in the crypto markets since the FTX collapse last November” said Max Coupland, Director of CoinJournal. “The SVB event served to kick volatility back up to levels we last saw amid all the crypto scandals of last year – not only FTX, but Celsius, LUNA etc. The difference with this event is that the crash was sparked in trad-fi for a change”.

Crypto bounces back

But all is well that ends well. Or something along those lines, as despite SVB going under, the Fed announced last night, after a weekend of chaos, that all deposits at SVB would be made whole. 

The bail-out (if you can call it that, as SVB is still going under) quelled up fear in the markets that the issue could become systemic. Crypto roared back, with Bitcoin spiking back up to $22,000 at time of writing. And this time, it was shorts who got caught offside, with $150 million liquidated across the market Sunday. 

Perhaps the biggest winner of all was the world’s second-biggest stablecoin, USDC. 25% of the stablecoin’s reserves are backed by cash. Crucially, 8.25% ($3.3 billion) of reserves were (are) trapped in SVB, with the stablecoin dipping below 90 cents on several major exchanges over the weekend. 

1/ Following the confirmation at the end of today that the wires initiated on Thursday to remove balances were not yet processed, $3.3 billion of the ~$40 billion of USDC reserves remain at SVB.

— Circle (@circle) March 11, 2023

At press time, the peg has been largely restored as the crypto market bounces upward, with Bitcoin north of $24,000.  

What next for crypto?

And so, the immediate storm appears to have been weathered in cryptoland. 

Nonetheless, the past few days present as yet another crushing blow. Three of the big crypto banks – SVB, Silvergate and Signature – are now no more. These banks allowed crypto firms to offer on-ramping from fiat into crypto 24/7 through their settlement services, in contrast to the regular banking hours of the banking sector. 

Liquidity and volume thus may dip even further in the crypto market, after a year that has already seen volumes, prices and interest in the space freefall. 

Despite the Fed stepping in to shore up deposits and hence stabilising the stablecoin market and wider crypto prices, the long-term future of the cryptocurrency industry in the US has taken another heavy body blow this weekend. And with the US being the biggest financial market in the world, that is very bad news. 

Coupled with the regulatory clampdown by the SEC in the last few months, 2023 has followed 2022 in creating a more hostile and bearish environment for the sector at large. 

So crypto investors may have seen a bounceback in prices in the last few months, but this appears to be largely macro-driven correlation with the stock market, as the underlying events in the industry – regulation, more bankruptcies, and crypto-friendly banks shuttering – have not been positive. 

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