Silvergate, a bank that has been at the center of the crypto industry’s growth, made a decision to shut down.
A drop in liquidity
The end of Silvergate is concerning for the industry, which could see a slowdown in inbound flows without the SEN or enough reliable alternatives.
Businesses still have Signature Bank, whose Signet platform is comparable to Silvergates SEN, but the company has already said it plans to limit its crypto exposure in light of recent events. The industry will be monitoring its developments, however, particularly following last week’s coordinated effort by the Fed, the FDIC and the OCC to warn banks about the liquidity risks of banking crypto companies.
“Those warnings make it difficult for the biggest banks to service the crypto space as we believe they have concluded that the opportunity is not worth the regulatory risk,” Jaret Seiberg, an analyst at Cowen, said in a note Thursday. “This likely consolidates crypto exposure to a handful of smaller banks, which means more liquidity risk and more concentration risk. Those are the very risks the banking regulators are trying to combat.”
Unless other small institutions step up, the U.S. risks losing significant market share overseas, Kaiko’s Ryder said, adding that Europe looks especially well positioned to step in thanks to its regulatory clarity in the form of Markets in Crypto-Assets (MiCA) regulation.
“Our data showed a spike in euro volumes for BTC versus the dollar over the last week,” he told CNBC Thursday. “We’ve also noticed a drop in liquidity on both USD crypto pairs and US exchanges as liquidity providers are taking a wait and see approach. In the short term, lower liquidity will lead to more volatility in markets and bigger price moves up or down.”
Crypto prices fell on Thursday after Silvergate, a bank that has been at the center of the industry’s growth, made a decision to shut down.
Bitcoin dipped nearly 2% to $21,641.71, according to Coin Metrics. Ether lost 1.5% and was last trading at $1,534.05.
The slight move lower began late Wednesday, a few hours after Silvergate Capital announced it will wind down operations and liquidate its crypto-friendly bank.
The relatively small size of the move indicates that cryptocurrency investors priced the news in to last week when the company first warned it may not be able to continue operating and shut down the SEN, or Silvergate Exchange Network, according to Conor Ryder, research analyst at Kaiko.
