Bitcoin drops below $20,000; $70 billion wiped out in the crypto market

Bitcoin has been under pressure since the Federal Reserve signaled interest rates could move higher than expected and after a major crypto-focused lender, Silvergate Capital, collapsed.

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Bitcoin fell below $20,000 on Friday, reaching an all-time low in nearly two months, following a sell-off in the US stock market and the collapse of a crypto-focused lender.

The cryptocurrency market saw more than $70 billion wiped off its value over the course of the 24 hours to 5:12 a.m. ET.

According to data from CoinDesk, Bitcoin was down nearly 8% at 5:11 a.m. to $19,900.28. ET. Ether fell more than 8% to $1,400.63.

The crypto sell-off has been driven by a number of factors. The movement of cryptocurrency prices is quite closely correlated with US stock markets, especially the technology-heavy ones Nasdaq. Major US indices closed lower on Thursday.

On Tuesday, US Federal Reserve Chairman Jerome Powell signaled that interest rates could reach – and remain – higher than expected. The increase in interest rates over the past year has weighed on risky assets such as stocks, and cryptocurrencies in particular.

“There is little reason to buy bitcoin now as the market is saturated with negative developments not only specific to the crypto industry, but also to the wider financial market,” said Yuya Hasegawa, an analyst at Japanese crypto firm Bitbank. CNBC via email.

Banks worry

Another major factor weighing on crypto prices is the collapse of Silvergate Capital, a major lender to the crypto industry. Silvergate said Wednesday it is winding down operations and liquidating its bank.

The fall of Silvergate is another example of how the collapse of major cryptocurrency exchange FTX continues to impact the industry. FTX was a major client of Silvergate.

Separately, Silicon Valley Bank said late Wednesday that it sold $21 billion worth of its holdings with a loss of $1.8 billion. SVB is a major bank in the technology start-up space. It provides traditional banking services and also finances tech projects and is considered a backbone of the venture capital industry in the US

The asset sale comes as SVB grapples with a weaker technology finance environment as VCs remain cautious amid a weaker macroeconomic situation and rising interest rates.

Both Silvergate and SVB are putting their money into US Treasury bonds, which have lost value as the Fed raised interest rates. These banks are forced to sell these bonds at a loss in order to strengthen their capital position.

“Overall, sentiment seems to have turned quite bearish given a combination of global macro and interest rate hikes, but also the exposure many banks likely have to long-dated securities,” Vijay Ayyar, vice president of business development at crypto exchange Luno, told me. , to CNBC via email.

Silicon Valley Bank CEO urges investors to remain calm even as stock prices plummet

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