Bitcoin, ether rumble on Friday as investors weigh potential fallout from Silvergate issues

Cryptocurrency prices fell on Friday as investors weighed the latest financial woes at Silvergate Capital and considered what a potential bankruptcy of the crypto bank could mean for the broader crypto industry.

Bitcoin fell more than 5% to $22,261.22, according to Coin Metrics. Ether lost 5.5% and traded at $1,555.37.

The decline came late Thursday night, hours after several crypto companies said they had 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, said on Wednesday it will not meet an extended deadline to file its annual report and warned it may not be able to operate for another 12 months.

“The bearish turn could certainly be a delayed reaction to Silvergate’s ongoing problems,” said Clara Medalie director of research at Kaiko. “Many major exchanges and market makers partner with Silvergate for fast transactions between entities, and any halt in inactivity could have an impact on global crypto liquidity.”

Bitcoin and Ether prices remained stable throughout Thursday, while shares of Silvergate fell 57%.

“To start 2023, crypto markets had a solid rally to six-month highs following a decline in FTX-related contagion, but the Silvergate news has renewed concerns around liquidity and risk,” Medalie added.

Bitcoin has recovered this year after falling more than 60% in 2022 to below $17,000 amid the retreat in risk assets and the implosion of FTX, which was a Silvergate client. Even after the latest 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.

Resilience in the crypto market

Analysts said the Silvergate issues were not an obvious trigger for the fall in bitcoin and ether. They also pointed to liquidations, macro factors and technical indicators.

“Overnight, bitcoin fell below $23,000, hitting a two-week low. In the process, traders were hit with millions of long liquidations,” Medalie said.

Yuya Hasegawa, an analyst at Japanese crypto firm Bitbank, said the 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 steadily, suggests that the move was largely structural and that the market still has significant resilience,” she said.

That resilience was a big takeaway for investors from the February trading month, when bitcoin and ether suffered brief falls of 6% and 8.5%, respectively, as US financial regulators began their crypto crackdown. Bitcoin went on to end the month less than 1% above flatline, while ether gained about 2%.

Given the bad news and the ongoing recovery from the FTX debacle in November, investors saw it as a victory even though crypto assets failed to match their double-digit January returns.

“The Silvergate news is really bad, but shouldn’t directly affect bitcoin holdings,” Acheson added. “However, it may scare some macro investors, who may pull back and wait for this to blow over.”

Joel Kruger, market strategist at LMAX Group, pointed to bitcoin’s recent failure to “establish above critical technical resistance in the form of the August 2022 high around $25,200” and “global inflation data that continue to suggest that central banks, particularly the Fed, will need to keep with a less investor-friendly monetary policy track at higher for longer” – in addition to the Silvergate scare.

If bitcoin fails to hold the $22,000 level, the next stop is likely to be around $21,400, where the February low and November high converge, according to Hasegawa.