Bitcoin’s Coinbase Premium at 3-Year High on USDC Volatility

Data tracked by analytics firm CryptoQuant shows bitcoin’s Coinbase Premium Index rose to 0.8, the highest since March 2020

The crisis at Silicon Valley Bank (SVB) and the ensuing volatility in the world’s second-biggest dollar-pegged stablecoin, USD Coin (USDC), has bitcoin (BTC) trading at comparatively higher prices on crypto exchange Coinbase (COIN).

According to data tracked by analytics firm CryptoQuant, bitcoin’s Coinbase Premium Index – which measures the spread between bitcoin’s U.S. dollar-denominated price (BTC/USD) on U.S.-based Coinbase and bitcoin’s tether-denominated price (BTC/USDT) on offshore giant Binance – increased to 0.8, the highest since March 2020.

Bitcoin trading at a premium on Coinbase is often considered to be representing stronger buying pressure from US organisations and experienced traders.

This time, though, the premium probably represents the cut USD Coin. The price of Bitcoin on Coinbase became sensitive to USD Coin volatility since the exchange in July 2022 integrated its order book – consisting of USD Coin as the base currency – with the USD order book (Users can deposit USD Coin on Coinbase, but it enters the order book as USD).

Backing the argument that bitcoin’s current dollar-denominated price on Coinbase arises from the USD Coin discount is the fact that the BTC/USDT pair on Coinbase trades almost in accordance with prices on other offshore exchanges.

Since USD Coin is trading below its peg, bitcoin seems costlier on Coinbase, pseudonymous DeFi researcher Ignas told CoinDesk. So, the spot market for bitcoin needs to be modified to reflect the current USD Coin price.

USD Coin dropped to $0.90 late Friday, diverging from its 1:1 dollar peg after its issuer, Circle Internet Financial, confirmed holding $3.3b in cash at the crisis-hit SVB. The news sparked a rotation of money out of USD Coin and into other assets, with Circle processing over $1b in net redemptions. At one time, USD Coin had rebounded to nearly $0.95.

Bitcoin at one time had bounced back to $21,100 compared with a low of nearly $19,600 hit on Friday.