Bitcoin dropped by almost 5% on Thursday night after a major industry bank, Silvergate Capital, sent a late notice on Wednesday expressing doubts about the future of its business.
Between 8:18 p.m. and 9:05 p.m. Thursday, New York time, the total market capitalization of crypto assets fell 4.6%, from $1.06 trillion to $1.02. Bitcoin hasn’t dropped so quickly and sharply since the morning of November 8, when the price dropped by 4% from $20,538 to $19,704 because of large withdrawals of FTT, the token for the crypto exchange FTX.
Bitcoin (BTC-USD) is currently worth $22,381, which is 4.3% less than it was 24 hours ago and 6.4% less than it was a week ago. “After today’s drop, the pullback is close to 10%, and bitcoin is on pace to close below its 50-day moving average (DMA) for the first time in nearly two months,” according to a Friday note from BeSpoke.
Over the past two days, the crypto market has been trying to figure out how to deal with the fact that Silvergate, a bank that serves the crypto industry, might fail. “Fortunately, Silvergate is not FTX. Silvergate is more of a fiat on/off-ramp for U.S. Dollars, rather than a key source of liquidity and volume for the entire crypto ecosystem,” said Michael Safai, a co-founder and partner of crypto proprietary trading firm Dexterity Capital.
Silvergate, which is based in La Jolla, California, said in a late notice on Wednesday that it would further delay its annual report because it had bigger losses than it had shown in preliminary results from January. It also had “certain regulatory and other inquiries and investigations that are pending with respect to the Company” and “its ability to continue as a going concern for the twelve months following the issuance of these financial statements.”
Through Thursday, major crypto exchanges and businesses quickly distanced themselves from Silvergate. From Thursday morning to Friday morning, the shares of the bank (SI) fell 62%, from $13.50 to $5.14. Coinbase, Paxos, Galaxy Digital, Gemini, BitStamp, Crypto.com, Cboe Digital, GSR, and Circle all said in statements that they have cut ties with Silvergate, which was once seen as a key banking partner for the sector. This made Silvergate’s business problems even worse.
Stablecoin issuer Circle added, it is “in the process of unwinding certain services with them.” Binance US and Kraken, on their own, would not say anything about how they were affected by Silvergate. The author of the Crypto Is Macro Now newsletter, Noelle Acheson, told Yahoo Finance on Friday, “There is some worry about the Silvergate news, but it’s not clear that it will lead to strong selling.”
Dexterity’s Safal agreed:
“It’s more a case of jaded traders digesting the news and not wanting to be left holding any potential ticking time bombs, but not understanding how this differs from the collapses of 2022.”
Safai also said that the response might have come from Asian markets reacting to the firms leaving Silvergate. According to Coinglass, the most bitcoin long positions were sold on March 2, for a total of $203 million, or $198 million after short positions were sold. This was the most bitcoin sold in a single day in the last three weeks.
As Acheson wrote in her Friday newsletter, since the ratio of ETH to BTC didn’t change much, bitcoin’s sharp drop hit the second-largest cryptocurrency, ether, “in equal measure.” As of Friday morning 8:30 a.m. New York time, one coin of ether was going for $1,570, which was down less than 4% from the day before.
Safai from Dexterity said that if Silvergate fails, confidence could be shaken, which could cause some firms to pull their money out of the market.
More News:
- After Silvergate Left, A Crypto Hedge Fund Looks To Swiss Banks For Help
- After The Company Delays Its Annual Report And Reveals New Losses, Silvergate Stock Falls
He added-
“That in itself could impact liquidity, but that wouldn’t have a ripple effect per se, nor would it last very long”
Acheson is more worried about what would happen to banking access if a traditional bank “went under” because of its crypto activities. “That would give regulators strong evidence that crypto risks could become “systemic,” and any financial institution that serves the crypto industry could face new barriers,” Acheson said over a messaging app. “Uncertainty is currently high,” she added.
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