Wordsmith Weekly: Time to Buckle Up After Crypto Client Exodus from Silvergate?
Welcome back to another edition of Wordsmith Weekly, a series designed to keep crypto enthusiasts like yourself up-to-date with the industry. It’s impossible to keep on top of everything with the market moving at a million miles per hour, but I hope these pieces help to make things a little easier.
It’s never a dull week in the crypto markets, and what an eventful week it has been. The week started on a somber note, which perhaps was a precursor for the events that were about to come. It began over the weekend with Bitcoin slipping beneath support at $23,500 as it tested the following structure at $23,000. As the new week commenced, things looked hopeful as the number one ranked cryptocurrency battled to climb as high as $23,800 by Wednesday. Unfortunately, everything changed on Friday, March 3rd, as Bitcoin tanked by an enormous 5%, causing it to lose ground at $23,000 and fall beneath $22,500;
The price drop has put Bitcoin at its lowest level over the past fortnight. Luckily, there is plenty of support at the February lows around $21,500 as analysts pray that the level holds next week. Failing to protect $21,500 leaves BTC open to breaking beneath $20,000 and heading to the January 2023 lows around $16,000 — something nobody welcomes. The fallout from the BTC price plummet caused Ethereum to drop 5% to hit $1,570, XRP to fall 6% to hit $0.36, and DOGE to drop 10% to hit $0.0759.
Today’s market wipeout primarily results from troubling news that one of the industry’s largest banking providers is facing significant headwinds. California-based banking giant, Silvergate Capital, stated that it could not file its mandatory annual report with the SEC on time. Silvergate was one of the most crypto-friendly banks in the sector, attracting heavyweight clients such as Coinbase, Circle, Paxos, Bitstamp, Galaxy Digital, Gemini, and Crypto.com.
The delay was due to needing further evaluations from its independent auditor and accounting firm, and the crypto-focused bank stated it would need two additional weeks to complete its report for the current fiscal year. The bank continued to reveal that the Q4 2022 crypto volatility combined with the FTX collapse affected its books, causing fresh losses on its securities portfolio and negatively impacting the regulatory capital ratios required to run a healthy bank. Additionally, the bank has been trying to meet withdrawals from crypto clients by selling off securities during January and February — showing the dire situation the bank is currently facing.
According to reports, Silvergate Capital saw an outflow of over $8 billion worth of digital assets during Q4 2022. As a result, they had to cut almost half of their staff as 200 employees were laid-off. Furthermore, the bank had to write off the $196 million invested in Diem, the former stablecoin asset from META.
Following Silvergate’s capital health revelations, crypto clients using the company for banking quickly started terminating their partnerships. One after another, heavyweights like Coinbase, Circle, and Crypto.com suspended all Automated Clearing House transactions with the bank as they distanced themselves from the turbulence. Thankfully, the crypto titans stated they had no material exposure to the bank, confirming customer funds were safe.
Unfortunately, the outcome for Silvergate resulted in a market wipeout for the company’s share price. The stock is now down 95% on the year, with 60% of the drop coming in the past seven days, which paints a very serious picture for future recovery.
Data from CoinGlass shows that over $250 million in crypto assets were liquidated after the price of Bitcoin fell beneath $23,000. Traders long on Bitcoin saw $75 million in liquidation, with $40 million more liquidations from traders long on Ethereum. With the considerable wipeout experienced this week, crypto enthusiasts are encouraged to remain cautious over the next few days to assess the extent of any potential damage caused by the Silvergate collapse.
Overall, although it might not have been cryptos strongest week, it certainly isn’t quite as bad as the fallout from the FTX disaster. This is promising for those holding crypto assets as there is still significant support before BTC can approach $20,000. Still, things are about to become very bumpy, so I recommend buckling up for the next couple of weeks.
About: The Wordsmith has worked with some of the biggest projects in the Fintech / DeFi and Web3 space. If you want to learn more about his services, head to https://www.wordsmithcrypto.com/.