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Crypto prices fell on Thursday after Silvergate, a bank that has been at the center of the industry’s growth, made the decision to shut down.
Bitcoin fell almost 2% to $21,641.71, according to Coin Metrics. Ether lost 1.5% and last traded at $1,534.05.
The slight decline began on Wednesday evening, hours after Silvergate Capital announced that it would cease operations and liquidate its cryptocurrency-enabled bank.
According to Conor Ryder, research analyst at Kaïko.
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Bitcoin and Ether have held up relatively well despite a challenging macro environment – still the main driver of crypto price action despite a declining correlation between crypto and stocks – and a series of setbacks for the space, including recent developments at Silvergate and the post-FTX industry regulatory crackdown that began in February.
Bitcoin’s correlation to stocks is lower than it was for much of 2022 and volatility has been near all-time lows for the past few weeks.
Thursday’s move pushed bitcoin below the key technical level of $22,200. While some investors hailed bitcoin’s recent sideways move in light of a series of negative industry developments, chart analysts looked for a close above $25,000 to make its gains more meaningful. year-to-date, now around 30%.
A drop in liquidity
The end of Silvergate is concerning for the industry, which could see a slowdown in inflows without the SEN or enough reliable alternatives.
Firms still have Signature Bank, whose Signet platform is comparable to Silvergates SEN, but the company has already announced plans to limit its crypto exposure in light of recent events. The industry will be watching its developments, however, especially after last week’s coordinated effort by the Fed, FDIC, and OCC to warn banks of liquidity risks from bank crypto companies.
“These warnings make it difficult for the biggest banks to service the crypto space as we believe they have concluded the opportunity is not worth the regulatory risk,” Cowen analyst Jaret Seiberg said Thursday. “It likely consolidates crypto exposure to a handful of smaller banks, which means more liquidity risk and more concentration risk. These are precisely the risks banking regulators are trying to combat.”
Unless other smaller institutions step in, the U.S. stands to lose significant market share overseas, Kaiko’s Ryder said, adding that Europe seems uniquely positioned to step in thanks to its clarity. regulation in the form of crypto-asset market regulation (MiCA).
“Our data showed an increase in euro volumes for BTC against the dollar over the past week,” he told CNBC on Thursday. “We have also noticed a drop in liquidity on crypto-USD pairs and US exchanges as liquidity providers take a wait-and-see approach. In the short term, lower liquidity will lead to greater volatility in the markets and larger price moves up or down.