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Weekly Market Update - Friday, March 17, 2023

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Weekly Blog 031723

Welcome to our Weekly Market Update.* Explore weekly crypto price movements, read a quick digest of notable market news, and dive into a crypto topic — this week we’re discussing stablecoins.

Crypto Movers This Week
What Happened This Week?
Crypto Topic of the Week - Stablecoins

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Crypto Movers This Week (7D)

Bitcoin (BTC) Price | ⬆️ 32.30% | $26,424

Ether (ETH) Price | ⬆️ 21.20% | $1,718

Immutable X (IMX) Price | ⬆️ 64.60% | $1.396

Liquity (LQTY) Price | ⬆️ 62% | $2.715

Mask Network (MASK) Price | ⬆️ 59.90% | $4.47

Crypto prices as of Friday, March 17, 2023, at 11:55am ET. Percentages show movement over the past seven days. Check out the latest crypto prices here.

New to Gemini? Sign up for an account here. Blog Inline 03

What Happened This Week?

Takeaways: A lot happened over the past 10 days! Three banks failed within a week of each other, pushing the Federal Reserve to guarantee customer deposits across the United States. The resulting impact of the bank failures saw a major stablecoin briefly lose its peg, while a boost in crypto prices followed early in the week. The confluence of events has continued to put a spotlight on the Fed, as the potential for large interest rate hikes loses steam.

U.S. banking failures spur government action: This past week was quite eventful, with a number of significant developments in the crypto and wider financial markets leading to surging volumes and heightened volatility. Igniting the fuse, three U.S. banks collapsed all within a week of each other.

As discussed last week, the first to go was crypto-focused bank, Silvergate, which announced it was shutting its doors on Wednesday, March 8, 2023.1 Then Silicon Valley Bank (SVB) rocked the markets on Friday, March 10, 2023, being the largest bank to fail since the 2008 financial crisis.2 Two days later, another crypto-focused bank, Signature, was closed by state regulators.3

To contain the simmering crisis, the Federal Reserve Board of Governors released a statement on Sunday announcing the availability of “additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors,” creating the Bank Term Funding Program (BTFP).4 On Monday morning, before the markets opened, President Joe Biden reiterated that the government would guarantee the safety of customer deposits across the banking industry.5

On the crypto banking front, the collapse of Silvergate, SVB, and Signature, which offered the ability to complete fiat transfers 24/7, may limit crypto participants’ banking options. This may reduce liquidity, particularly on weekends, increase settlement times, and make arbitrage between exchanges more difficult.

USD Coin (USDC) briefly loses its peg: The second largest stablecoin, USDC, saw its price depeg from its 1-to-1 dollar backing over the weekend, trading as low as ~$0.88.6 Circle, the group behind USDC, had significant cash exposure to SVB, and Coinbase paused conversions between USDC and U.S. dollars over the weekend creating a brief panic across the stablecoin market. Multiple other stablecoins pegged to the U.S. dollar also saw their prices depeg, and bitcoin (BTC) prices dropped as low as $19.5k along with double-digit declines across altcoin prices. By Monday, USDC had recovered its peg as U.S regulators stepped in over the weekend to guarantee deposits.

Crypto prices rise following weekend turmoil: Increased market liquidity from the BTFP, an expected reduction in interest rate hikes, and a lower than expected terminal interest rate all helped to push crypto prices higher throughout the start of the week.

Bitcoin (BTC) prices broke above the strong $25k resistance, reaching ~$27k on Friday morning.7 Ether (ETH) prices rallied higher too, touching ~$1,780,8 although it has lagged BTC, trading toward the bottom of long-term range on the ETHBTC pair.9 The outperformance of BTC and to a lesser extent ETH would suggest a flight to quality and is further evidenced by some weakness across alts with some down for the week and Bitcoin dominance rising to ~46%.10

Shifting interest rate expectations: This week saw a shift in expectations regarding upcoming interest rate changes, as the potential fallout of rapid rate increases becomes more pronounced.

Although inflation remains a concern, the immediate worry now lies with bank health and potential contagion to the rest of the banking sector. The events of the past week may limit the Fed’s ability to implement further rate hikes to dampen inflation. At its peak last week, market expectations for a 50bps rate hike at the upcoming Fed policy meeting on March 22 reached 80%. The consensus has tempered a bit, with the market expecting that the Fed will announce a 25bps rate raise.11

-From the Gemini Trading Desk

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Crypto Topic of the Week — Stablecoins

Stablecoins have been in the news lately, as questions were raised about the funds backing certain large stablecoins following the collapse of SVB. While those concerns have now largely subsided, we thought it fitting to focus on stablecoins for this week’s crypto topic.

What are stablecoins? Whether the purpose is to retain a peg to the price of a fiat currency, a commodity, or some other asset, stablecoins are meant to maintain a predictable value.

In most cases, the value of a stablecoin is tied directly to a fiat currency or tangible commodity, like Gemini dollar (GUSD), which is pegged 1:1 to the U.S. dollar. However, stablecoins can also achieve price-stability through collateralization against other cryptocurrencies or algorithmic token supply management. Since stablecoins are not meant to fluctuate significantly in price, they are designed to be used as a transfer of value rather than as an investment.

What are the different types of stablecoins? There are four main ways stablecoin issuers ensure a steady or predictable value. Stablecoin collateral structures can be fiat-backed, crypto-backed, commodity-backed, or algorithmic.

Fiat-backed stablecoins, the most common type, are pegged to a fiat currency and are usually backed 1:1 by fiat and cash equivalents. In these cases, one stablecoin can always be redeemed for fiat, like U.S. dollars in the case of GUSD.

Crypto-backed stablecoins are typically overcollateralized by an underlying cryptocurrency asset to account for crypto price volatility. To create, or mint, a crypto-backed stablecoin, a user typically locks their cryptocurrency in a smart contract to receive the stablecoin, and pays the stablecoins back into the same smart contract to withdraw their original collateral.

Commodity-backed stablecoins are pegged to the value of underlying commodity assets like gold, silver, or real estate. Holders of these stablecoins have a claim to their underlying assets. The most popular commodity-backed stablecoins are backed by gold.

Algorithmic stablecoins seek to maintain their peg a bit differently. Rather than being backed 1:1 by a specific asset, their price stability is maintained by the use of algorithms and smart contracts that manage the supply of tokens in circulation. The stablecoin’s algorithm may automatically expand or contract the number of tokens in circulation in order to meet a specific price target.

You can dive deeper into stablecoins with these articles: What Are Stablecoins? | Understanding Stablecoins: They’re Not All Created Equal | The Global Stablecoin Ecosystem.

See you next week. Onward and Upward!

Team Gemini

*This material is for informational purposes only and is not (i) an offer, or solicitation of an offer, to invest in, or to buy or sell, any interests or shares, or to participate in any investment or trading strategy, (ii) intended to provide accounting, legal, or tax advice, or investment recommendations, or (iii) an official statement of Gemini. Gemini, its affiliates and its employees do not make any representation or warranty, expressed or implied, as to accuracy or completeness of the information or any other information transmitted or made available. Buying, selling, and trading cryptocurrency involves risks, including the risk of losing all of the invested amount. Recipients should consult their advisors before making any investment decision. Any use, review, retransmission, distribution, or reproduction of these materials, in whole or in part, is strictly prohibited in any form without the express written approval of Gemini.


1https://www.cnbc.com/2023/03/08/silvergate-shutting-down-operations-and-liquidating-bank.html

2https://www.fdic.gov/news/press-releases/2023/pr23016.html

3https://www.cnbc.com/2023/03/12/regulators-close-new-yorks-signature-bank-citing-systemic-risk.html

4https://www.cnbc.com/2023/03/12/regulators-unveil-plan-to-stem-damage-from-svb-collapse.html

5https://www.whitehouse.gov/briefing-room/speeches-remarks/2023/03/13/remarks-by-president-biden-on-maintaining-a-resilient-banking-system-and-protecting-our-historic-economic-recovery/

6https://www.circle.com/blog/an-update-on-usdc-and-silicon-valley-bank

7https://www.gemini.com/prices/bitcoin

8https://www.gemini.com/prices/ether

9https://www.tradingview.com/symbols/ETHBTC/

10https://www.tradingview.com/symbols/BTC.D/

11https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html

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