Good morning. Here’s what’s happening:

Prices: Crypto prices continue to remain flat as traders a traders await the FOMC's decision on interest rates.

Insights: Monetary liquidity expectations are one driver moving crypto markets these days, though not in the way many think – even if easing is around the corner, liquidity is tight, argues CoinDesk columnist Noelle Acheson.

Good morning Asia.

Crypto markets are once again fairly flat as traders await the next release from the Federal Open Market Committee (FOMC).

Bitcoin is up 0.1% in the last 24 hours to $28,163 while Ether is up 1.5% to $1,794.

Meanwhile, Dogecoin is one of the market’s fastest moving tokens, up 4% in the last 24 hours.

The U.S. Dollar Index (DXY) is coming close to a five-week low at 103.19.

One observation that’s been made is how the biggest stackers of sats appear to be the mini-whales, with wallets that hold greater than 10 bitcoins. This co-hort is growing faster than the mega-whales, or those with a bitcoin balance greater than 10,000 bitcoins.

This suggests that there’s a new level of conviction forming for crypto, in light of macroeconomic events.

Overall trading volume continues to be flat across the market as traders await the FOMC’s next announcement on interest rates. Stocks are also flat ahead of the Fed’s policy decision.

Prediction markets are pricing in an 85% chance of a 25 bps increase after the March meeting, while survey results from CME’s FedWatch put that number at 89%, up from 69% a week ago.

A CNBC survey shows that traders now have mixed opinions about Fed rate hikes with only 52% saying that the Fed should hike rates.

It remains to be seen how this new group of sats stackers will react if the Fed slows interest rates as the year progresses.

INSIGHTS

Bitcoin and the Liquidity Question: More Complex Than It Seems

By Noelle Acheson

Three years ago this past weekend, markets were reeling from a particularly bad week. The S&P 500 had lost almost 17% of its value, the Dow Jones Industrial Average had suffered its worst one-day drop on record, and bitcoin (BTC) had plummeted over 50% to just below $4,000 before recovering slightly. The number of COVID-19 cases was rocketing up around the world; New York City was closing all bars, restaurants and schools; in Spain, we were several days into lockdown. Things were looking bad.

The financial machine was springing into action. On March 15, 2020, the U.S. Federal Reserve slashed its benchmark interest rate by 100 basis points to almost zero and committed to boosting its bond holdings by at least $700 billion. The message was one of “we’ll do whatever it takes,” and it worked. The global economy staggered and then limped, but markets soared.

That week made history on so many levels. It also unleashed a wave of armchair virologists on Twitter to keep us up to date with every minutia of the COVID threat. We didn’t know it then but that wave set us up for what we’re living through today.

If you’ve spent any time on Twitter over the past week, you’ll have noticed a new breed of liquidity experts telling us that the Fed’s actions over the past few days mark a reversion to quantitative easing (QE) and/or a pivot. In 2020, more of us got into the habit of getting our news from Twitter, regardless of the quality. Fast forward three years and we have a similar mindset: New liquidity pontificators are trying to teach bona fide experts, and disinformation blends with nuance to create an uncomfortable mix of hope, distrust and confusion.

Superficial social media analysis aside, the events of three years ago also set us up for what we’re going through today on a more serious level. The liquidity that the Fed would inject into the economy in 2020-2021 created an easy money environment that pushed up asset values, flooded startups with eager venture capital funding and loaded bank balance sheets with low-yielding government bonds as well as some riskier securities. It also ended up fuelling the steepest increase in consumer prices in over four decades.

This, in turn, triggered the fastest interest rate hiking cycle since the 1980s, which decimated asset prices and destabilized the equilibrium between bank assets and liabilities. The crisis that began in 2020 as the pandemic introduced unprecedented stimulus entered a new phase three years later almost to the day, with the closure of three U.S. financial institutions in the space of a week and the disappearance of a 166-year-old global systemically important bank (Credit Suisse) as a separate organization.

As it tends to do when faced with banking system strain, the Fed has again jumped into action. To make more funds available to meet withdrawals, two Sundays ago it announced the opening of a new financing facility called the Bank Term Funding Program (BTFP). This enables banks to deposit government debt as collateral in exchange for a loan of 100% of its face value, even if the collateral market value is much lower.

Here is where the crypto market started to get excited. From a local low of $19,700 on Friday, March 10, BTC went on to soar 42% to over $28,000 nine days later. (Stock and bond markets also rallied, but by insignificant amounts in comparison.) Crypto Twitter celebrated the end of monetary tightening, the onset of a new QE and the dawn of a new bull run.

In the early hours of March 10, bitcoin was trading around $19,600. It whipsawed just above and below $20,000 until around 12 p.m. ET when it was announced that SVB was going into FDIC receivership. At that point, bitcoin shed $200 to dip below $20,000, jumped around a bit and spent most of the weekend trading above $20,000.

By Monday, March 13 at 9:30 a.m. ET it was trading at $22,386. And then the fun began. Just 24 hours later, bitcoin was trading at $26,175, at one point even touching up against $26,500. As of publication, it is currently sitting around $26,700.

I’ve maintained (here and here and probably elsewhere) that narrative matters a lot when it comes to the price of assets. If you don’t believe me, you could ask Federal Reserve Chair Jerome Powell, who said that “people’s expectations of inflation have a real effect on inflation.”

Given Bitcoin’s history, the bank failure adjacency is obvious here: At least three banks have failed, others – both American and non-American – are failing. Because it’s not because of Bitcoin, that’s good for bitcoin’s price.

Actually, it isn’t clear who is at fault for the three bank failures, because who even knows if these banks are failing due to insolvency?

Sure, SVB failed due to an old-fashioned bank run that was spurred on due to apparent weaknesses on its balance sheet because of poor duration risk management. And, yes, Silvergate was running into some issues and had to take an FHLB Loan, but its eventual winding down was reportedly voluntary. And then we have Signature Bank, where even the regulators can’t figure out if the bank was shut down because of crypto or because of a “crisis of confidence” in leadership.

Let’s add on the fact that there are wider risks to the broader banking system. Credit Suisse (CS) just received a 50 billion Swiss franc loan from the Swiss central bank, and 11 banks just injected $30 billion into California-based regional bank First Republic Bank (FRC) in order to save it.

On the former, it is telling that the central bank wants to save Credit Suisse. On the latter, it is even more telling that banks want to save a competitor for fear of contagion. (Otherwise, why wouldn’t they just let a competitor fail?)

That all said, we know one thing that isn’t causing these banks to fail. These banks aren’t in trouble because of bets on bitcoin, crypto or the companies in those industries. What appears to be happening is the fractional reserve banking system is under stress due to rising interest rates, and it’s showing cracks.

And so the narrative goes: As the banks fail, opt out and buy bitcoin. That narrative is strong enough to propel the price.

Top upcoming Defi events:

There are several upcoming cryptocurrency and blockchain events in 2023 that may feature DeFi topics. Some of the top events to watch out for include The Blockchain Event in Florida, Blockchain Economy London Summit, Blockchain Economy Dubai Summit, Istanbul Blockchain Week, ETH Gathering Barcelona, Dcentral Miami, Paris Blockchain Week, Zebu Live, NFT Show Europe, and Blockchain Expo Europe. You can find a more comprehensive list of upcoming crypto conferences and events on influencermarketinghub.comand hashtaginvesting.com.