The Go-To Crypto Bank Silvergate Announces Its Liquidation, Sending Bitcoin And Ether Plummeting

Cryptocurrency prices dipped on Thursday as Silvergate, a bank that has been at the forefront of the industry's growth, announced its closure.

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According to Coin Metrics, Bitcoin fell 2% to $21,570.04. Ether was last trading at $1,527.58 after losing over 2%.

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The minor decline began late Wednesday, only hours after Silvergate Capital announced that it will cease operations and liquidate its crypto-friendly bank.

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According to Conor Ryder, research analyst at Kaiko, the relatively tiny scale of the move shows that cryptocurrency investors priced the news in last week when the business originally warned it would not be able to continue functioning and shut down the SEN, or Silvergate Exchange Network.

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Despite a difficult macroeconomic environment and a declining correlation between cryptocurrencies and stocks, bitcoin and ether have held up reasonably well. Other setbacks for the space include the recent Silvergate developments and the post-FTX regulatory crackdown on the industry that started in February.

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Bitcoin's correlation with equities is now lower than it was for the most of 2022, and for the past several weeks, its volatility has been at or very close to historic lows.

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The movement on Thursday brought bitcoin below the crucial technical barrier of $22,200. Despite the fact that some investors have welcomed bitcoin's recent sideways movement in light of a number of unfavorable industry developments, chart analysts have been waiting for the cryptocurrency to close above $25,000 in order to give more context to its year-to-date gains, which are currently around 30%.

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Decreased liquidity

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The demise of Silvergate is worrying for the sector, which now anticipates a slowing in incoming flows in the absence of the SEN or other trustworthy alternatives.

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Companies still have access to Signature Bank's Signet platform, which is equivalent to Silvergate's SEN, but the business has previously said that it intends to reduce its exposure to cryptocurrencies in light of recent developments. Nonetheless, the industry will be keeping an eye on its progress, especially in light of the concerted effort last week by the Fed, the FDIC, and the OCC to alert banks to the liquidity concerns associated with banking cryptocurrency startups.

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The top banks find it challenging to serve the cryptocurrency market as a result of these cautions because, in our opinion, they have decided that the potential is not worth the regulatory risk, according to a note published on Thursday by Cowen analyst Jaret Seiberg. "This probably consolidates crypto exposure to a few smaller institutions, which increases concentration risk and liquidity risk. The financial regulators are attempting to reduce just such risks.

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According to Kaiko's Ryder, if smaller institutions don't act quickly, the United States runs the risk of losing significant market share abroad. Ryder added that Europe appears especially well-positioned to act quickly because of its regulatory clarity in the form of the Markets in Crypto-Assets, or MiCA, regulation.

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“According to our statistics, bitcoin volumes in euros increased significantly last week when compared to dollars, he told CNBC on Thursday. "Since liquidity providers are adopting a wait-and-see attitude, we've also witnessed a decline in liquidity on both USD crypto pairings and U.S. exchanges. Less liquidity will cause markets to be more volatile and cause larger price swings in the short term.