Crypto market falls due to Silvergate crisis
The cryptocurrency market continues to be rocked. This time, the shock comes from Silvergate, one of the main cryptocurrency banks connecting traditional finance with cryptocurrencies. News of payment problems has caused institutional clients to flee, and most crypto assets have fallen in value.
Silvergate was one of the first organisations in the US to provide cryptocurrency banking services, both lending and providing liquidity. A quote from former FTX head Sam Bankman-Fried was featured on the bank's website: "Life as a crypto firm can be divided up into before Silvergate and after Silvergate."
Ironically, with the collapse of FTX, Silvergate saw a $1 billion hole in its balance sheet in Q4 2022, with regulators launching pre-trial investigations over the bank's possible involvement in the fraudulent use of clients' funds at the failed crypto exchange.
On 1 March, Silvergate filed a notice with the SEC that it would be delayed in submitting its report for the past financial year. The document specifically points out the need for a more accurate assessment of incurred losses, and its capitalisation level may not be satisfactory. All this could lead to the company's inability to continue operations for 12 months after releasing the reports.
The bad news led to the following day's announcement that partnerships would be terminated/frozen and transactions to/from Silvergate would not be possible for Coinbase, Circle, Paxos, Galaxy Digital, Bitstamp, Wintermute, Gemini and many other major industry representatives. Bitcoin reacted with a sharp drop of 5%.
The crisis at Silvergate comes amid regulators' tightening of conditions in the crypto sector. Nic Carter from CoinDesk called the developments "Operation Choke Point 2.0". The Biden administration is stepping up measures to make it harder to exchange fiat for cryptocurrencies and may potentially disconnect the entire cryptocurrency sector from the banking environment.
StormGain Analytical Group
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