Cryptocurrency prices fell on Friday as investors weighed the latest financial woes at Silvergate Capital and assessed what a potential bankruptcy at the crypto bank could mean for the broader crypto industry.
Bitcoin dipped by more than 5% to $22,261.22, according to Coin Metrics. Ether lost 5.5% and traded at $1,555.37.
The drop came late Thursday night, hours after several crypto companies said they’d stopped accepting or initiating payments to or from Silvergate including Coinbase, Galaxy Digital, Circle, Paxos and Bitstamp. Silvergate, which has become the go-to bank for cryptocurrency businesses, gave notice Wednesday that it won’t meet an extended deadline to file its annual report and warned it may not be able to operate another 12 months.
“The bearish turn could certainly be a delayed reaction to Silvergate’s ongoing issues,” said Clara Medalie director of research at Kaiko. “Many large exchanges and market makers partner with Silvergate for fast transactions between entities, and any halt inactivity could have an impact on global crypto liquidity.”
Bitcoin and ether prices remained flat throughout Thursday, while shares of Silvergate dropped 57%.
“To start 2023, crypto markets enjoyed a solid rally to six-month highs following a slowdown in FTX-related contagion, but the Silvergate news has renewed concerns around liquidity and risk,” Medalie added.
Bitcoin has recovered this year after tumbling more than 60% in 2022 to below $17,000 amid the pullback in risk assets and the implosion of FTX, which was a Silvergate customer. Even after the recent decline, bitcoin is up more than 30% this year — though it could be in for a month of sideways trading now that the broader rally in risk assets has faded.
Crypto market resilience
Analysts said the Silvergate woes weren’t an obvious trigger for the drop in bitcoin and ether. They also pointed to liquidations, macro factors and technical indicators.
“Overnight, bitcoin dropped below $23,000, hitting its lowest level in two weeks. In the process, traders were hit by millions of long liquidations,” Medalie said.
Yuya Hasegawa, an analyst at Japanese crypto firm Bitbank, said that drop happened “without a clear trigger.” Noelle Acheson, economist and author of the “Crypto is Macro Now” newsletter, echoed the point about liquidations.
“The fact that it was a short and sharp dump, and that bitcoin and ether prices are now bouncing along steadily, suggests that the move was largely structural, and that the market still has considerable resilience,” she said.
That resilience was a big takeaway for investors from the February trading month, in which bitcoin and ether suffered a brief drop of 6% and 8.5%, respectively, as U.S. financial regulators began their crypto crackdown. Bitcoin went on to finish the month les than 1% above the flatline, while ether eked out a roughly 2% gain.
Given the bad news and the ongoing recovery from the FTX debacle in November, investors saw that as a win even though the crypto assets failed to match their double digit January returns.
“The Silvergate news is really bad, but should not directly affect bitcoin holdings,” Acheson added. “It could spook some macro investors, however, who could withdraw and wait for this to blow over.”
Joel Kruger, market strategist at LMAX Group, pointed to bitcoin’s recent inability to “establish above critical technical resistance in the form of the August 2022 high around $25,200” and “global inflation data that continues to suggest central banks, particularly the Fed, will need to keep with a less investor-friendly monetary policy track of higher for longer” – in addition to the Silvergate scare.
If bitcoin fails to hold the $22,000 level, the next stop will likely be around $21,400, where the February low and November high converge, according to Hasegawa.