Bitcoin plunged nearly 5% over Thursday night following a Wednesday late notice filed by major industry bank Silvergate Capital that expressed doubts about the future of its business.
In line with Bitcoin, the total market capitalization for crypto assets fell 4.6% from $1.06 trillion to $1.02 trillion between 8:18 p.m. to 9:05 p.m. New York time.
Bitcoin hasn’t plunged so fast and sharp since the price fell by 4% $20,538 to $19,704 on the morning of Tuesday, November 8 as FTT the token for crypto exchange FTX faced massive withdrawals.
Bitcoin (BTC-USD) is changing hands at $22,381, down 4.3% for the last 24 hours and 6.4% over the past week.
“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 is coming to grips with the potential failure of crypto industry-serving bank, Silvergate.
“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.
The La Jolla, Calif. headquartered Silvergate said in a Wednesday late notice it would further delay its annual report due to greater losses than it showed in January preliminary results in addition to “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,” according to the filing.
Through Thursday, major crypto exchanges and businesses quickly distanced themselves from Silvergate. The shares of the bank (SI) fell 57% through the day from $13.50 to $5.78.
Further exacerbating Silvergate’s business challenges, Coinbase, Paxos, Galaxy Digital, Gemini, BitStamp, Crypto.com, Cboe Digital, GSR and Circle each issued statements saying they have cut ties with what was once considered a crucial banking partner for the sector.
Stablecoin issuer Circle added, its “in the process of unwinding certain services with them.”
Separately, Binance US and Kraken would not comment on their exposure to Silvergate.
“There is some dismay around the Silvergate news, but it’s not clear it would trigger strong selling,” Noelle Acheson, author of the Crypto Is Macro Now newsletter, told Yahoo Finance Friday.
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 suggested the response may have come from Asian markets reacting to the exodus of firms from Silvergate.
Over Thursday March 2, $203 million in bitcoin long positions were liquidated or $198 million net of short liquidations – the most in a single day in three weeks – according to crypto derivatives aggregator Coinglass.
As Acheson noted in her Friday newsletter, given little change of the ETH to BTC ratio, bitcoin’s sharp drop hit the second largest cryptocurrency ether “in equal measure.” Ether is changing hands at $1,570 per coin, down less than 4% for the past day for the week as of Friday morning 8:30 New York time.
Silvergate’s direct impact on the crypto market’s liquidity is “very marginal at best,” according to Safai. However, in a worst case scenario of the bank’s failure, confidence could be shaken causing some firms to pull capital out of the market.
“That in itself could impact liquidity, but that wouldn’t have a ripple effect per se, nor would it last very long,” Safai told Yahoo Finance.
More important for Acheson are the repercussions for banking access if a traditional bank were to “go under” due to its crypto activities.
“That would give regulators strong ammunition that crypto risks could become ‘systemic’ and any financial instiution serving the crypto industry could come up against new barriers,” Acheson explained over a messaging app.
“Uncertainty is currently high,” she added.
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