Bitcoin’s Thursday Night Drop, Biggest One-Hour Drop Since FTX
Bitcoin plunged nearly 5% during Thursday night following a late warning from major industrial bank Silvergate Capital on Wednesday that expressed doubt about the future of the business.
In line with Bitcoin, the total market capitalization of the crypto-asset fell 4.6% from $1.06 trillion to $1.02 trillion between 8:18 p.m. to 9:05 p.m. Thursday New York time.
Bitcoin has not plunged so quickly and sharply since its price fell 4% from $20,538 to $19,704 on the morning of Tuesday, November 8 as the FTT token for crypto exchange FTX faced massive withdrawals.
Bitcoin (BTC-USD) is changing hands at $22,381, down 4.3% in the last 24 hours and 6.4% in the last week.
“After today’s drop, the pullback is close to 10% and bitcoin is about to close below its 50-day moving average (DMA) for the first time in nearly two months,” according to a Friday note from BeSpoke.
Over the past two days, the crypto market has come to grips with the potential failure of industry-serving bank Silvergate.
“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, co-founder and partner of proprietary crypto trading firm Dexterity Capital.
La Jolla, Calif.-headquartered Silvergate said in a late notice on Wednesday that it would further delay its annual report due to a larger loss than it showed in preliminary results in January as well as “certain regulatory and other inquiries and investigations pending with regard to the Company” and its “ability to continue as a going concern for the twelve months following the issuance of these financial statements,” according to the filing.
Throughout Thursday, major crypto exchanges and businesses quickly distanced themselves from Silvergate. The shares in the bank (SAY) has fallen 62% from Thursday morning to Friday’s open from $13.50 to $5.14.
Further compounding Silvergate’s business challenges, Coinbase, Paxos, Galaxy Digital, Gemini, BitStamp, Crypto.com, Cboe Digital, GSR and Circle each issued statements saying they have cut ties with what was once considered a crucial banking partner for the sector.
Stablecoin issuer Circle added, “in the process of discontinuing certain services with them.”
Separately, Binance US and Kraken would not comment on their exposure to Silvergate.
“There is some consternation around the Silvergate news, but it’s not clear it will trigger strong selling,” Noelle Acheson, author of the Crypto Is Macro Now newsletter, told Yahoo Finance on Friday.
Dexterity’s Safal agreed: “It’s more a case of tired traders digesting the news and not wanting to be left with potential ticking bombs but not understanding how this differs from the 2022 collapses.”
Safai also suggested that the response may have come from Asian markets reacting to the exodus of firms from Silvergate.
During Thursday, March 2, $203 million in long bitcoin positions were liquidated or $198 million net of short liquidations — the most in a single day in three weeks — according to crypto derivatives aggregator Coinglass.
As Acheson noted in his Friday newsletter, given little change in the ETH to BTC ratio, bitcoin’s sharp drop hit the second-largest cryptocurrency ether “equally.” Ether is changing hands at $1,570 per coin, down less than 4% in the last day as of Friday morning at 8:30 New York time.
In the worst-case scenario with Silvergate’s failure, confidence could be shaken and cause some firms to withdraw capital from the market, Dexterity’s Safai said.
“That in itself could affect liquidity, but it wouldn’t have a ripple effect by itself, nor would it last very long,” he added.
More important to Acheson are the consequences for banking access if a traditional bank were to “go under” due to crypto activities.
“It would give regulators strong ammunition that crypto risk could become ‘systemic’ and any financial institution serving the crypto industry could face new barriers,” Acheson explained over a messaging app.
“Uncertainty is currently high,” she added.
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