USDC volatility lifts Bitcoin’s Coinbase premium to 3-year high

The crisis at Silicon Valley Bank and the resulting volatility in the world’s second-largest dollar-pegged stablecoin, USD Coin (USDC), has led to relatively high trading prices for bitcoin (BTC) on cryptocurrency exchange Coinbase (COIN).

Data tracked by analytics firm CryptoQuant shows that Bitcoin’s Coinbase Premium Index — which measures the difference between BTC’s dollar-denominated price (BTC/USD) on the U.S.-based Coinbase and BTC’s tether-denominated price on offshore giant Binance (BTC/USDT) The spread between – rose to 0.8, the highest since March 2020.

Bitcoin’s premium trading on Coinbase is generally considered to represent greater buying pressure from U.S.-based institutions and experienced traders.

This time, however, the premium may represent a discount or bleed for USDC. Bitcoin’s price on Coinbase has become sensitive to fluctuations in USDC since the exchange merged its order book (with USDC as the base currency) with its USD order book last July (users can deposit USDC to Coinbase, but it into the order book as USD).

Supporting the argument that Bitcoin’s current USD price on Coinbase stems from the USDC discount is the fact that the BTC/USDT pair on Coinbase is nearly in line with other offshore exchanges.

“With USDC trading below its peg, BTC appears to be trading at a higher price on Coinbase,” DeFi researcher Ignas, who works by pseudonym, told CoinDesk. “Therefore, the spot market for BTC needs to adjust to reflect the current USDC price.”

USDC fell to $0.90 late on Friday, diverging from its 1:1 dollar peg, after its issuer, Circle Internet Financial, confirmed it held $3.3 billion in cash at crisis-ridden Silicon Valley Bank. The news triggered a diversion of funds from USDC to other assets, with Circle processing more than $1 billion in net redemptions. At press time, USDC has rebounded to around $0.95.

At press time, Bitcoin had rallied to $21,100, compared with Friday’s low of around $19,600.

“When news broke that Circle’s funds were trapped at Silicon Valley Bank, users scrambled to convert their USDC into dollars,” Ignas said. “On Coinbase, users can exchange $1.00 for 1 USDC, but Coinbase paused the conversion during the weekend when banks were closed, which made the situation worse, leaving traders with no choice but to liquidate their holdings in the spot market.”

“There is no USDC market on Coinbase,” Ignas added. “So the BTC/USD market effectively acts as a BTC/USDC market.”

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Information source: compiled by 0x information from COINDESK.Copyright belongs to the author Omkar Godbole, without permission, may not be reproduced

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