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| By Sam Blumenfeld |
Bitcoin (BTC, Tech/Adoption Grade “A-”) and the broader crypto market are retreating as the market processes the financial distress of Silvergate Bank, a California-based crypto bank that could go bankrupt.
Silverbank announced it would delay its annual 10-K financial report filing, a decision that did not bode well, considering just last week the bank revealed in its disclosure to the Securities and Exchange Commission that its health could be threatened by investigations from banking regulators.
The fear ignited by this development sparked swift reactions from Silvergate’s big name clients, like Coinbase (COIN), Paxos, Circle Internet Financial and Galaxy Digital, which moved to sever ties.
Silvergate and institutions like it are critical for the mainstream adoption of crypto.
Why? Well, even though crypto is separate from TradFi, it still relies on regulated banking partners to bring U.S. dollars in and out of the crypto system.
We’ve previously called centralized exchanges “on ramps,” which allow investors to trade fiat currency for crypto. Banks like Silvergate are what make that possible behind the scenes.
Now, with regulatory uncertainty and the possibility of the Federal Reserve continuing to hike interest rates, investors are worried about potential contagion effects that could impact the solvency of other exposed institutions.
At the very least, other crypto-friendly banks may be looking to reduce their crypto exposure in the near term. Signature Bank, Coinbase’s replacement for Silvergate, already did so last year during the height of the bear market.
Additional regulations may pressure them to continue.
Without strong crypto-friendly banks, mainstream crypto adoption will become much more difficult.
While we hope nothing more severe comes from this latest headline, let’s take a look at how the markets reacted …
Bitcoin is down about 5% today to $22,400. This brought it below its 21-day moving average and halted short-term momentum.
The asset is searching for support, which it could find at $21,500 or $20,700.
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But even with the pullback over the last two weeks, Bitcoin is still up 35% year to date. As the market leader, it will be important for Bitcoin to hold its ground. Remember, any weakness would likely cause a greater swing for altcoins.
The crypto market was overdue for a healthy pullback anyway, so the short-term retreat is not a major concern unless contagion effects worsen. That’s why we’ll be watching the Silvergate situation closely.
Ethereum (ETH, Tech/Adoption Grade “B”) is also down 5% in today’s trading, as it hovers slightly below $1,600. The second-largest crypto by market cap has mostly mirrored Bitcoin’s performance recently, but it saw larger positive bounce backs during the green days this week.
Ethereum also dipped below its 21-day moving average today and lost short-term momentum, but it could find support at its current trading level. If not, the next potential support level is at $1,500.
ETH has mostly traded in a neutral direction since late-January, but the asset’s early January run heavily contributed to its 32% year-to-date gain.
Notably, Ethereum successfully rolled out the Shapella upgrade on the Sepolia testnet, paving the way for unstaking on its mainnet soon.
Investors can also look forward to improved scaling through sharding — a way of splitting the network into shards to lessen congestion — which could happen later this year.
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Notable News, Notes and Ratings
- Multiple “Buy”-rated cryptos were recently upgraded, but the total number dipped to 19 due to several downgrades. Bitcoin and Polygon (MATIC, Tech/Adoption Grade “B+”) maintained their status as the only cryptocurrencies rated “B+” or better:
1. Bitcoin (BTC, Overall Grade “B+”)
2. Polygon (MATIC, Overall Grade “B+”)
3. Chainlink (LINK, Overall Grade “B”)
4. Curve DAO Token (CRV, Overall Grade “B”)
5. Decentraland (MANA, Overall Grade “B”)
6. Ethereum (ETH, Overall Grade “B”)
7. Litecoin (LTC, Overall Grade “B”)
8. OKB (OKB, Overall Grade “B”)
- Despite laying off thousands of workers, Goldman Sachs (GS) is still looking to hire crypto experts for its digital assets unit.
- Israel’s Tel Aviv Stock Exchange is moving closer to allowing crypto trading.
- U.S. crypto lobbying spending jumped 120% last year to $25.57 million.
- Americans are frustrated with the current financial system, and they are turning to crypto ownership. Right now, 20% of adults in the U.S. own crypto, and another third of the population plans to trade it within the next year.
What’s Next
Regulatory scrutiny and the impacts of the Silvergate situation could amplify short-term risks in crypto, but its outlook is extremely bright as both institutional and retail adoption grows.
With inflation running hotter than expected and the labor market still showing signs of strength, the Fed has the green light to continue raising interest rates.
A later Fed pivot may delay the start of crypto’s next bull run, but the industry’s progress lays the groundwork for its next major sustainable rally.
Best,
Sam
