Bitcoin, ether fall after go-to crypto bank Silvergate announces liquidation

The decision to close Silvergate, a bank that has been at the forefront of the industry’s growth, led to a decline in cryptocurrency prices on Thursday.

According to Coin Metrics, the price of Bitcoin dropped 2% to $21,570.04. After a loss of over 2%, ether’s price last traded at $1,527.58.

Late on Wednesday, a few hours after Silvergate Capital, the modest decline started.

declared that it would cease operations and dissolve its bank that supported cryptocurrencies.

Bitcoin, ether fall after Silvergate

According to Conor Ryder, research analyst at Kaiko, the very minor scale of the move suggests that cryptocurrency investors priced the news in last week when the company initially warned it may not be able to continue operating and it shut down the SEN, or Silvergate Exchange Network.

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.

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

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 unfavourable 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%.

A drop in liquidity

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

Companies still have access to Signature Bank’s Signet platform, which is comparable to Silvergate’s SEN, but the business has previously stated 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 coordinated effort last week by the Fed, the FDIC, and the OCC to alert banks to the liquidity risks 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 opportunity 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 those risks.

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.

In relation to the currency, “our data shows a jump in euro volumes for bitcoin over the last week,” 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.

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