Bitcoin price falls as Silvergate fears wipe out bullish crypto traders

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

Concerns over problems at Silvergate (ticker: SI) appear to be finally catching up with traders. Silvergate, an influential banker for digital asset companies and a key intermediary in the institutional crypto market, disclosed in filings late Wednesday that securities sales amid a bank run could make it “less than well capitalized.” A federally insured bank, the group said it was evaluating its ability to continue as a going concern and was “in the process of reassessing its businesses and strategies,” also noting regulatory scrutiny.

Initially, the impact on crypto prices was muted: Bitcoin slowly fell from above $23,500 to below $23,300 between late Wednesday and into Thursday, before prices plunged to nearly $22,000 early Friday. Prices fell sharply as Bitcoin fell below $23,300, driven by losses in the crypto derivatives market, with Bitcoin futures representing the most liquid market across digital assets.

Bitcoin futures positions are often taken on margin, or money borrowed from a broker, and can be wiped out in an instant if the value of the collateral – often Bitcoin itself – falls below a required level. Nearly 80,000 traders have had crypto futures positions — not just across Bitcoin — liquidated in the past 24 hours, with $240 million wiped, according to CoinGlass data.

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

Indeed, these issues endogenous to crypto are likely to dominate market sentiment in the immediate term, overshadowing the correlation to the stock market which often sees Bitcoin trade in tandem with

Dow Jones Industrial Average

and

S&P 500.

But traders would do well to keep an eye on equity markets, where investors remain concerned about inflation and interest rates – forces that are likely to remain key to crypto sentiment in the longer term.

A central concern surrounding Silvergate is that problems at the bank could affect liquidity in the crypto markets. The company facilitates transfers between exchanges and market makers – which do much of the trading in Bitcoin – and if it stops, it could exacerbate liquidity problems that have existed for months, making the crypto more volatile.

While this trend may already be in play, with many exchanges and trading firms already announcing that they are ceasing operations using Silvergate’s platform, it may not be devastating, according to one market participant.

“Fortunately, Silvergate is not FTX. Silvergate is more of a fiat on/off ramp for the US dollar, rather than a key source of liquidity and volume for the entire crypto ecosystem,” said Michael Safai, managing partner at crypto trading firm Dexterity Capital. “In an absolute worst case scenario confidence is shaken a little, which may lead to some firms temporarily withdrawing some capital from the market.”

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

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

Beyond Bitcoin,

Ether

— the second largest crypto — fell 4% to $1,565. Smaller cryptos or altcoins were also firmly in the red, with

Cardano

and

Polygon

both down 4%. Memecoins saw even deeper losses, with

Dogecoin

falling 6% and

Shiba Inu

drop 5%.

Write to Jack Denton at [email protected]