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Cryptocurrency prices fell on Thursday after Silvergate, a bank central to the industry’s growth, decided to close.
Bitcoin fell 2% to $21,570.04, according to Coin Metrics. Ether lost nearly 2% and last traded at $1,527.58.
The slight move to the downside began late Wednesday, a few hours after Silvergate Capital announced it was winding down its operations and liquidating its crypto-friendly bank.
The relatively small size of the move indicates cryptocurrency investors priced in the news last week when the company first warned it may not be able to proceed and shut down the SEN, or Silvergate Exchange Network, according to Conor Ryder, research analyst at Kaiko.
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Bitcoin on Thursday
Bitcoin and Ether have held up relatively well despite a challenging macroeconomic environment – still the biggest driver of crypto price action despite a declining correlation between crypto and stocks – and a series of space setbacks, including the recent Silvergate developments and the post-FTX regulatory crackdown on the industry that began in February.
Bitcoin’s correlation to stocks is lower than it has been for much of 2022, and volatility has been near historic lows in recent weeks.
Thursday’s move pushed bitcoin below the key USD 22,200 technical level. While some investors have welcomed bitcoin’s recent sideways move in the face of a series of negative developments in the industry, chart analysts have been looking for the cryptocurrency to close above $25,000 to give more meaning to its year-to-date gains , now about 30%.
A drop in liquidity
The end of Silvergate is worrying for the industry, which now expects a slowdown in inflows without the SEN or sufficiently reliable alternatives.
Companies still have Signature Bank, whose Signet platform is similar to Silvergate’s SEN, but the company has already said it plans to limit its crypto exposure in light of recent events. However, the industry will monitor developments, particularly following last week’s coordinated effort by the Fed, FDIC and OCC to warn banks about the liquidity risks associated with banking crypto companies.
“Those warnings make it difficult for the biggest banks to operate the crypto space as we believe they have come to the conclusion that the opportunity is not worth the regulatory risk,” said Jaret Seiberg, an analyst at Cowen, on Thursday in a note. “This is likely to consolidate crypto exposure to a handful of smaller banks, bringing more liquidity risk and more concentration risk. Those are the very risks banking regulators are trying to combat.”
If smaller institutions don’t act, the US risks losing significant market share abroad, Kaiko’s Ryder said, adding that Europe seems particularly well positioned to step in thanks to regulatory clarity in the form of Markets in Crypto-Assets (MiCA) Regulation .
“Our data showed a spike in euro volumes for bitcoin against the dollar over the past week,” he told CNBC on Thursday. “We have also noticed a drop in liquidity on both USD crypto pairs and US exchanges as liquidity providers take a wait and see approach. In the short term, lower liquidity will lead to more volatility in markets and greater price moves up or down.”