Data tracked by analytics firm CryptoQuant shows bitcoin's Coinbase Premium Index – which measures the spread between BTC's U.S. dollar-denominated price (BTC/USD) on U.S.-based Coinbase and BTC's tether-denominated price (BTC/USDT) on offshore giant Binance – rose to 0.8, the highest since March 2020.
Bitcoin trading at a premium on Coinbase is often taken to represent stronger buying pressure from U.S. institutions and sophisticated traders.
This time, however, the premium likely represents the discount or flight from USDC. Bitcoin's price on Coinbase became sensitive to USDC volatility since the exchange in July last year merged its order book – consisting of USDC as the base currency – with the USD order book. (Users can deposit USDC on Coinbase but it enters the order book as USD.)
Supporting the argument that bitcoin's current dollar-denominated price on Coinbase stems from the USDC discount is the fact that the BTC/USDT pair on Coinbase trades pretty much in line with prices on other offshore exchanges.
"Because USDC is trading below its peg, BTC appears more expensive on Coinbase," pseudonymous decentralized finance (DeFi) researcher Ignas told CoinDesk. "Therefore, the spot market for BTC needs to be adjusted to reflect the current USDC price."
USDC fell as low as 90 cents late Friday, deviating from its 1:1 dollar peg after its issuer, Circle Internet Financial, confirmed holding $3.3 billion in cash at the crisis-stricken Silicon Valley Bank. The news triggered a rotation of money out of USDC and into other assets, with Circle processing more than $1 billion in net redemptions. At press time, USDC had bounced to around 95 cents.
At press time bitcoin had rebounded to $21,100 versus a low of roughly $19,600 touched on Friday.
"When news broke that Circle's funds were stuck in Silicon Valley Bank, users rushed to redeem their USDC for USD," Ignas said. "On Coinbase, users could redeem 1 USDC for $1.00, but Coinbase suspended conversions over the weekend when banks are closed, which worsened the situation, leaving traders with no option but to liquidate holdings in the spot market."
"There is no USDC market on Coinbase," Ignas added. "So the BTC/USD market is effectively acting as a BTC/USDC market."
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