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Bitcoin prices have largely failed to consolidate recent gains above $24,000.
Dreamstime
Cryptocurrencies held their ground on Thursday, seeming to shrug off news of financial trouble at an influential bank for digital-asset businesses, as well as the possibility that it could bring regulation that might threaten the underpinnings of the industry.
Silvergate Capital (ticker: SI), a member of the Federal Reserve System, disclosed late Wednesday that it is evaluating its ability to continue as a going concern and is “in the process of re-evaluating its businesses and strategies.”
The lender faced a a bank run late last year, forcing it to sell assets at a loss, which could result in it being “less than well-capitalized,” the company said. Silvergate also noted that it is under regulatory scrutiny, listing “investigations from our banking regulators, congressional inquiries and investigations from the U.S. Department of Justice” among factors that could affect it.
Silvergate stock was down 45% on Thursday, bringing losses over the past year to near 95%. Shares of
Signature Bank
(SBNY), which also deals with crypto companies, lost 5%.
But cryptocurrencies barely budged.
The price of Bitcoin has fallen less than 1% over the past 24 hours—a tiny move in the volatile world of crypto—to around $23,350. It was much the same across the digital asset space, with
Ether
1% lower at $1,630.
“The crypto market has thus far shown surprising resilience in the face of heightened regulatory pressure against the industry in the United States,” said Jake Boyle, director of retail crypto brokerage Caleb & Brown. “News of Silvergate’s problems hasn’t brought down the crypto market as much as some might have expected.”
A lack of response from traders is surprising considering that Silvergate’s distress could have a direct effect on players in the crypto market. Silvergate facilitates transfers between exchanges and market makers, who make up a lot of crypto trading volumes, so any disruption to its operations has the potential to exacerbate a relative lack of liquidity that began with the failure of the FTX crypto exchange in November. That could make digital assets even more volatile.
Coinbase Global
(COIN), a leading U.S. crypto exchange operator, said on Thursday that it was no longer accepting or initiating payments to or from Silvergate “out of an abundance of caution.” It said had minimal corporate exposure to the bank.
Regulators have increased their scrutiny of crypto as prices have fallen over the past year, but pressure appears to have intensified following FTX’s bankruptcy. Silvergate’s troubles could turn up the heat.
The possibility that the bank might not stay in business plays to regulators’ worst fear: that crypto represents a danger to the stability of the traditional financial system. In late February, the Federal Reserve, Federal Deposit Insurance Corp., and Office of the Comptroller warned banks of the risks of taking deposits from crypto firms, the latest sign that regulators would prefer that banks not touch digital assets.
Should U.S. regulators tighten controls over how banks can interact with crypto, making it harder to move money between digital assets and the world of traditional finance, that could threaten the survival of the industry in the world’s largest economy, at least as we know it now. Regulators likely wouldn’t bar people from owning Bitcoin, but doing so requires some technical chops without the infrastructure of exchanges and banks most investors now rely on.
“It’s clear that the crypto industry in the United States is going through a difficult time. The troubles with regulators will take years to iron out, and the recent Silvergate news may have a short-term impact on the market,” said Boyle. “I think most analysts are expecting volatility for the months ahead—that is, until issues like Silvergate and the broader regulatory situation in the United States get closer to being resolved.”
Write to Jack Denton at [email protected]
