Bitcoin Drops as Silvergate Fears Quelling Bullish Cryptocurrency Traders

“If Bitcoin fails to defend $22,000, the next stop is likely to be around $21,400, where the February low and November high converge,” said Yuya Hasegawa, an analyst at cryptocurrency exchange Bitbank.

It seems that concerns about problems at Silvergate (ticker: SI) are finally starting to gripe traders. Silvergate, an influential banker to digital asset firms and a major broker in the institutional crypto market, revealed in filings late Wednesday that sales of securities in the midst of bank trades could leave them “less than well capitalized.” The group, a federally insured bank, said it was assessing its ability to continue as a going concern and was “in the process of reassessing its business and strategies,” also citing regulatory scrutiny.

At first, the impact on cryptocurrency prices was muted: Bitcoin slowly retreated from above $23,500 to below $23,300 between late Wednesday and Thursday, before prices plummeted to near $22,000 early Friday. Prices fell sharply with bitcoin dropping below $23,300, driven by losses in the crypto derivatives market, with bitcoin futures representing the most liquid market across digital assets.

Bitcoin futures are often taken on margin, or money borrowed from a broker, and can be wiped out in the blink of an eye if the value of the collateral — often bitcoin itself — falls below the required level. Nearly 80,000 traders with cryptocurrency futures trades — not just via Bitcoin — liquidated in the last 24 hours, with $240 million wiped out, According to CoinGlass data.

“The decline pushed the price below its 50-day moving average, which does not bode well for the short-term outlook,” said Alex Kuptsikevich, an analyst at FxPro.

In fact, these cryptocurrency’s subjective issues are likely to dominate market sentiment in the near term, overtaking the stock market correlation that often sees bitcoin trading in line with

Dow Jones Industrial Average

And

Standard & Poor’s 500.

But traders would do well to keep an eye on the stock markets, as investors remain concerned about inflation and interest rates — forces that are likely to remain central to sentiment around cryptocurrencies in the long term.

One of the main concerns about Silvergate is that problems with the bank could affect liquidity in the cryptocurrency markets. The company facilitates transfers between exchanges and market makers – who do much of the trading in Bitcoin – and if that stops it could exacerbate liquidity issues that have been around for months, making crypto even more volatile.

While this trend may already be in play, with several exchanges and trading firms already announcing that they have stopped doing business with the Silvergate platform, it may not be as devastating, according to a market participant.

Fortunately, Silvergate is not an FTX. “Silvergate is more of a USD on/off ramp, rather than a major source of liquidity and volume for the entire cryptocurrency ecosystem,” said Michael Savai, managing partner at cryptocurrency trading firm Dexterity Capital. Absolute worst, confidence is slightly shaken, which may cause some companies to temporarily withdraw some capital from the market.”

Regulatory concerns are also important, especially as legal storm clouds have gathered around the industry since FTX’s collapse in November. In late February, the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller warned banks about the risks of taking deposits from crypto companies. Silvergate said it is “analyzing certain regulatory and other pending inquiries and investigations.”

“In the short term, the issues facing Silvergate could roil the crypto industry,” said Dave Weisberger, CEO of CoinRoutes, an algorithmic trading platform. “In the long term, the legal and regulatory issues facing the crypto industry will continue.”

beyond bitcoin,

ether

– the second largest cryptocurrency – down 4% to $1,565. Cryptocurrencies, or altcoins, were also firmly in the red, with

Cardano

And

ribbed

Both are down 4%. Memecoins experienced deeper losses, with

Dogecoin

by 6% and

shiba inu

shedding 5%.

Write to Jack Denton at [email protected]