The cryptocurrency marketplace is experiencing a downturn on Friday as a result of Silvergate Capital’s (NYSE: SI) evaluation of its capacity to continue in business.
The leading cryptocurrency Bitcoin (CRYPTO: BTC) has dropped 4.3% as of 10 a.m. ET today, while the second-largest cryptocurrency Ethereum (CRYPTO: ETH) is down 4.1% and the meme token Shiba Inu (CRYPTO: SHIB) has dropped 5.8%.
So what?
On Wednesday, Silvergate submitted a filing to the Securities and Exchange Commission (SEC) indicating it was delaying the filing of its annual report while looking into the impact of several events. Silvergate offers a real-time U.S. dollar payments network aimed at facilitating crypto transactions and aiding institutional traders and crypto exchanges, as cryptocurrencies trade 24/7.
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Silvergate’s large client, FTX, was led by a former CEO who was the subject of a court filing that revealed that he used straw donors to try to influence the 2022 election. The bank saw a 70% decline in digital-asset-related deposits in the fourth quarter of 2022, forcing it to sell a portion of its bond portfolio at a loss, wiping out much of its shareholders’ equity. This, combined with the regulatory inquiries into Silvergate’s relationship with FTX, has caused investors to worry that the bank could face severe regulatory action.
Silvergate’s SEC filing disclosed that it sold bonds at a loss during the second quarter and its capital levels could now be below regulatory requirements. This caused Silvergate’s stock to drop 20%, which triggered a ripple effect in the crypto market, resulting in Bitcoin, Ethereum, and Shiba Inu all taking a hit.
Some of the most popular digital assets such as Coinbase (NASDAQ: COIN), Bitcoin, Ethereum, and Shiba Inu have been facing a bearish market lately. This downturn can be linked to the closure of Silvergate Bank, which is a major partner of Coinbase, as their stocks dropped by 58% and the share value dropped to $5. This news has made investors anxious and concerned about the future of their investments.
According to Clara Medalie, Director of research for Kaiko, this bearish trend could be a delayed response to Silvergate’s problems. Additionally, there are now wider industry worries that Federal Bank regulators are trying to limit the banking relationships between crypto firms and FDIC-insured banks. This news could have an impact on global crypto liquidity.
Signature Bank (NASDAQ: SBNY) has also cut back on its crypto activities, which is hurting the industry as a whole. Silvergate’s services allow exchanges and traders to convert fiat currency into crypto and vice versa, which is fast and convenient.
Though there are some concerns, Bitcoin and Ethereum have held up well and are expected to remain around for a while. People will still be able to swap them for fiat currency. However, meme tokens such as Shiba Inu are not nearly as popular, so investors may want to be careful with investing in them.
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It’s important to consider all options before investing in digital assets. Investors should be aware of the risks associated with these types of investments, but they can also be potentially rewarding.