Bitcoin falls on Silvergate-linked Worries

Bitcoin as well as other cryptocurrencies are down on Friday as a result of worries over Silvergate Capital, whose distress could have an adverse effect on how the market operates and the regulatory landscape.

Over the past 24 hours, the price of Bitcoin has dropped 4% to around $22,350 before recovering to $22,369 at the time of writing, moving below the $23,000 mark that it had been holding above for weeks. Bitcoin was at its lowest point since early February, sitting above $22,000.

The area around $21,400, which is the convergence of Bitcoin’s November high and February low, will probably be the next halt if it cannot hold a price over $22,000. It appears that concerns concerning issues at Silvergate have finally taken hold among traders. Silvergate, a significant broker in the institutional crypto market and a powerful banker to corporations that deal in digital assets, disclosed in documents late on Wednesday that it might not have enough capital due to securities sales during a bank run.

A bank that is federally insured stated that it was reassessing its businesses and plans as well as its capacity to operate as a going concern, noting regulatory scrutiny. Early effects on cryptocurrency prices were minimal: between late Wednesday and early Thursday, Bitcoin gradually declined from about $23,500 to below $23,300 before prices crashed to little under $22,000 early Friday.

Losses in the cryptocurrency derivatives market, where Bitcoin futures constitute the most liquid market among digital assets, caused prices to drop rapidly as Bitcoin plummeted below $23,300.

Positions in Bitcoin futures are frequently taken on margin, or with money borrowed from a broker, and they can be instantly lost if the value of the collateral—often Bitcoin itself—falls below a necessary level. About 80,000 traders had their holdings in crypto futures liquidated on the previous day, losing $240 million in total.

The price has dropped below its 50-day moving average as a result of the decline, which is not encouraging for the near-term outlook. In fact, it’s possible that in the short run, these crypto-specific concerns will outweigh the stock market’s correlation, which frequently sees Bitcoin trade in sync with the Dow Jones Industrial Average and S&P 500.

But, investors’ concerns about inflation and interest rates on the equity markets, where traders would do well to keep a watch, are factors that are likely to continue to be important for sentiment towards cryptocurrencies over the long term.
The possibility that issues at the bank could affect liquidity in the crypto markets is a major worry surrounding Silvergate. If the company stops facilitating transfers between exchanges and market makers, which conduct the majority of Bitcoin trading, it might exacerbate liquidity difficulties that have already existed for months, increasing the volatility of cryptocurrencies.

Even while that trend might already be in motion—many exchanges and trading companies have already announced that they are ceasing to use Silvergate’s platfor. Silvergate is not FTX. Silvergate is less a major source of volume and liquidity for the entire crypto ecosystem and more of a fiat on/off ramp for U.S. dollars. In the worst-case scenario, confidence is slightly dented, which can lead some businesses to temporarily withdraw some funds from the market.

Regulation worries are also significant, particularly in light of the industry’s growing legal storm clouds after FTX’s collapse in November. The Office of the Comptroller, Federal Deposit Insurance Corp., and Federal Reserve all issued warnings to banks about the dangers of accepting deposits from cryptocurrency businesses in late February. “Analyzing various regulatory and other inquiries and investigations that are underway,” Silvergate stated.

Short-term turmoil in the crypto business may result from Silvergate’s issues. The legal and regulatory challenges the crypto business is currently facing will persist in the long run. Ether, the second-largest cryptocurrency behind Bitcoin, dropped 4% to $1,565. Cardano and Polygon, two lesser-known cryptocurrencies or altcoins, both fell by 4%. Shiba Inu and Dogecoin both had much greater losses, falling 6% and 5%, respectively.