Bitcoin falls, as Silvergate’s collapse highlights the biggest threat to crypto

Major cryptocurrencies fell on Thursday after Silvergate Capital Corp

SAY

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on Wednesday said it intended to wind down operations and voluntarily liquidate its subsidiary Silvergate Bank, a crypto-friendly lender, a week after the La Jolla, Calif.-based company said in a regulatory filing that it was at risk of “being less than well capitalized .”

I spoke with Matt Hougan, chief investment officer at Bitwise Asset Management, who said the Silvergate issues point to “the biggest threat” to the crypto industry in the US

As always, find me on Twitter at @FrancesYue_ to share some thoughts about crypto, this newsletter, or your personal stories with digital assets.

The Silvergate problems

The liquidation of Silvergate Bank could accelerate a “concerted effort to shut the US banking system off from the crypto industry,” Bitwise’s Hougan said. Such efforts will introduce more risk to the crypto market, according to Hougan.

See: Silvergate Capital is tanking as the company plans to spin off its crypto-friendly bank

Silvergate’s collapse marks the end of a key player that enabled banking for many crypto companies, and is likely to intensify regulatory scrutiny surrounding banks’ dealings with digital asset entities, Hougan noted.

Still, it’s fortunate for the crypto industry that Silvergate’s liquidation is happening recently, rather than a few years ago, when the lender was arguably the only bank willing to work with crypto customers in the US, according to Hougan.

Banks have traditionally been reluctant to offer services to crypto entities, in part due to a lack of regulation, according to industry participants. Founded in 1988, Silvergate began taking crypto clients in 2013, when the lender began to see rapid growth.

Now, while the crypto industry will be hit by Silvergate’s crash, it has grown large enough to handle the demise of one bank, Hougan said.

New York-based Signature Bank

SBNY

said Thursday that it maintains a “strong, well-diversified financial position and limited digital asset-related deposit balances in the wake of industry developments.” Shares fell more than 12% on Thursday amid a broad bank sell-off in the wake of the announced Silvergate decommissioning and as shares in SVB Financial Group

SIVB

plunged.

Signature Bank provides deposit services for its customers’ digital assets, but does not invest in, trade in, maintain its own balance sheet or provide custody for digital assets, and does not lend against or make loans secured by such assets. the company said.

Some large traditional institutions such as JPMorgan Chase & Co

JPM

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has also worked with a few crypto companies.

See: Signature Bank says its financial position is “strong,” but its stock is falling anyway

“The global banking system is going to find a way to have crypto as a customer,” Hougan said. “I suspect we will find a way in the US for the more regulated parts of the crypto industry to have more stable traditional banking relationships,” Hougan noted.

The crypto market cap is close to $1 trillion, down more than 60% from its peak of $2.8 trillion in November 2021, while still a massive uptick from under $400 billion in 2019, according to data from CoinMarketCap.

JPMorgan and Gemini

Crypto exchange Gemini Trust has denied that JPMorgan is ending its banking relationship with the company, which was reported by CoinDesk earlier Wednesday citing an anonymous source. “Gemini’s banking relationship remains intact with JPMorgan,” the crypto exchange wrote on Twitter.

JP Morgan reportedly took on Gemini and Coinbase as clients in 2020, according to a Wall Street Journal article.

Representatives at Coinbase did not respond to MarketWatch’s request for comment. The exchange told CoinDesk that the banking relationship with JPMorgan remains intact.

See also: Fed’s Barr: Recent move to protect banks from crypto doesn’t mean the central bank is against innovation

SEC’s action against BKCoin

The US Securities and Exchange Commission on Monday announced an emergency action against Miami-based investment adviser BKCoin Management LLC and one of its principals, Kevin Kang, alleging they are involved in a crypto-asset fraud scheme.

The SEC said in a statement that it has obtained an asset freeze, appointment of a receiver and other relief. The emergency action was filed under seal on Feb. 23 and unsealed Monday, according to the SEC.

BKCoin raised about $100 million from at least 55 investors to invest in crypto between October 2018 and September 2022, but the firm and Kang allegedly used the money for personal use and Ponzi-like payments, according to the SEC. Ponzi schemes refer to fraud that generates returns for earlier investors with money obtained from later investors.

MarketWatch’s Anushree Dave wrote more about it here.

Crypto in a flash

Bitcoin lost 9% in the past week and was trading at around $20,806 on Thursday, according to CoinDesk data. Ether fell 7.5% in the same period to around $1,482.

Crypto companies, funds

Shares in Coinbase Global Inc.

COIN

fell 8.2% for the week to around $58.51. MicroStrategy Inc.

MSTR

lost 15% so far this week, to $215.08.

Crypto mining company Riot Blockchain Inc.

RIOT

fell nearly 10% to $5.59 per Thursday. Shares of rival Marathon Digital Holdings Inc.

MARA

fell 11.2% to $5.56 in the past week. Ebang International Holdings Inc.

EBONY

traded 12% lower in the past week to around $6.18.

Overstock.com Inc. shares

OSTK

retreated 3.5% to $18.11 during the week.

Shares in Block Inc.

SQ

,
formerly known as Square, fell 4.9% to $74.25 for the week so far. Tesla Inc.

TSLA

shares were down 8.6% at $174.43.

PayPal Holdings Inc.’s

PYPL

The stock rose 2.7% on the week to trade at around $76.09. Nvidia Corp

NVDA

gained 0.9% to $235.24 in the past week.

Advanced Micro Devices Inc.

AMD

shares rose 4.7% to $84.22 for the week.

Among crypto funds, ProShares Bitcoin Strategy

BITO

fell 8% on the week to $12.68 on Thursday, while its counterpart Short Bitcoin Strategy ETF

BITI

rose 8% to $30.90. Valkyrie Bitcoin Strategy ETF

BTF

lost 8% in the past week to $8.09, while the VanEck Bitcoin Strategy ETF

XBTF

fell 8.4% to $20.59.

Grayscale Bitcoin Trust

GBTC

rose 7.2% over the past five days to $11.79 on Thursday.

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