Silvergate Collapse Causes Further BTC, ETH LossesApril 7, 2023
The trouble surrounding Silvergate is getting even bigger. So big, in fact, that the prices of many leading digital currencies – including bitcoin and Ethereum – took serious dips during the early weeks of March.
Silvergate Crash Causes Crypto Assets to Sink
Bitcoin, for example, fell from about $22,300 to just over $20,000 after news emerged that Silvergate was planning to shut down completely. The company said it will wind down all operations and liquidate the assets it’s holdings in the coming weeks.
There is good news in that bitcoin – which only fell by about $2,000 or so – likely priced the move in during the preceding weeks given the dip was so small. It is possible bitcoin was expecting something like this to happen and it was likely prepared for it, thus shielding investors and traders from what could have easily been a serious situation.
Jaret Seiberg – an analyst at Cowen – explained in a recent note that there were plenty of warning signs surrounding the present aura of Silvergate. SVB Financial, for example – which is a Silicon Valley-based bank that provides funds to tech startups – was previously working to raise more than $2 billion as a means of helping to offset the losses of bond sales. He said:
Those warnings make it difficult for the biggest banks to service the crypto space as we believe they have concluded that the opportunity is not worth the regulatory risk. This likely consolidates crypto exposure to a handful of smaller banks, which means more liquidity risk and more concentration risk. Those are the very risks the banking regulators are trying to combat.
Conor Ryder – research analyst at Kaiko – also threw his two cents into the mix, commenting that bitcoin and other major cryptocurrencies have held up remarkably well throughout the turmoil. He mentioned:
Our data showed a spike in euro volumes for bitcoin versus the dollar over the last week. We’ve also noticed a drop in liquidity on both USD crypto pairs and U.S. exchanges as liquidity providers are taking a wait-and-see approach. In the short term, lower liquidity will lead to more volatility in markets and bigger price moves up or down.
So Many Dying Companies
The death of Silvergate is just another chalk mark on the growing blackboard of crypto firms that have fallen victim to the bear conditions of 2022. These include companies like Three Arrows Capital and Block Fi, the latter of which was heavily tied to the now defunct crypto exchange FTX.
Silvergate also had ties to the digital trading platform run by Sam Bankman-Fried, and it can be argued that any firm that “boasted” heavy business dealings with the bankrupt exchange are now paying a serious price. The company filed bankruptcy in November of last year and its founder is awaiting trial for fraud.
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