Bitcoin and Ethereum losses exceed $24 billion as Silvergate unfolds

The top row

Cryptocurrencies tumbled late Thursday and early Friday after the latest troubling news about Silvergate Capital, the bank that backs many of the biggest cryptocurrency players, losing major clients and teetering on the brink of bankruptcy.

Basic elements

Bitcoin fell 4% to $22,385 from Thursday morning to Friday, hitting a 16-day low, while ethereum also fell 3% overnight.

That slide wipes out $23.6 billion in market capitalization for the world’s two biggest digital assets.

There was no “clear trigger” for the latest selloff, bitbank analyst Yuya Hasegawa wrote in emailed comments, but it appeared to be a belated response to major crypto players such as Coinbase, Circle and Paxos announcing on Thursday evening that they would not are now using. Silvergate Financial Services, after the bank said in a regulatory filing Wednesday that it was “less than well capitalized.”

Shares of two of the largest publicly traded companies, Coinbase and MicroStrategy, rose 4% each amid an otherwise strong morning for stocks, as the S&P 500 rose 0.6% to add Thursday earnings.

Key background

Founded in 1988, California-based Silvergate has become known over the past decade for its early willingness to work with crypto clients, reaching a valuation of around $6 billion at its peak in November 2021. But just as Silvergate led its boom cryptocurrency to new heights, has become exposed to the risks of a loosely regulated industry, with the high-profile bankruptcy of the FTX exchange spelling its own potential downfall. Silvergate endured an $8.1 billion run during the last three months of 2022 as clients panicked over Silvergate’s nine-figure trades with FTX. Shares in Silvergate have fallen 98% from their November 2021 high and fell nearly 60% on Thursday after its top clients rose.

Crucial passage

The recent crypto nosedive serves as a “reminder” of the “apparent ripples” coming from the FTX collapse, which “undermined confidence” in the industry, Oanda analyst Craig Erlam wrote on Friday.

What to watch out for

If bitcoin falls below $22,000, it will likely fall to a six-week low of $21,400, Hasegawa predicted.

Further reading

Crypto Crisis: A Timeline of Key Events (Wall Street Journal)

Was Silvergate on borrowed time as regulators backed banks away from crypto? (CoinDesk)

Binance asset shuffle eerily similar to maneuvers by FTX (Forbes)

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