• Silvergate, a major crypto company, has announced plans to shut down its operations and liquidate its assets.
• The news has caused the prices of leading digital currencies such as bitcoin and Ethereum to take serious dips.
• Analysts have warned that this could cause a further consolidation of crypto exposure to a handful of smaller banks, leading to more liquidity risk and concentration risk for investors.
Silvergate Collapse Causes Crypto Price Dips
The recent announcement from Silvergate regarding their plans to shut down all operations and liquidate their assets has caused the prices of many digital currencies including Bitcoin and Ethereum to take serious dips in recent weeks.
Warning Signs Around Silvergate
Analysts have noted that there were plenty of warning signs surrounding the present aura of Silvergate. SVB Financial, a Silicon Valley-based bank providing funds to tech startups, had previously been attempting to raise more than $2 billion as a means of helping offset any potential losses from bond sales. These warnings make it difficult for bigger banks to service the crypto space as they have likely concluded that the opportunity is not worth the regulatory risk involved. This could lead to a further consolidation of crypto exposure into fewer hands, which would increase liquidity risks as well as concentration risks for investors.
Cryptocurrencies Holding Steady Despite Turmoil
Despite all these issues facing Silvergate and other crypto firms, cryptocurrencies like Bitcoin have held up remarkably well throughout the turmoil according research analyst Conor Ryder at Kaiko. He mentioned that data showed an increase in euro volume transactions involving Bitcoin compared with those using dollars over the last week but also noted that there had been a drop in overall liquidity across USD pairs as well as on U.S.-based exchanges due to providers taking a wait-and-see approach towards cryptocurrency investments. This lower liquidity inevitably leads to increased volatility in markets which could result in larger price movements going forward.
The Growing Blackboard Of Crypto Company Casualties
The death of Silvergate is just another addition onto what has become an ever growing list of failed crypto companies throughout 2021/2022 including Three Arrows Capital and Block Fi amongst others who have fallen victim to bear market conditions during this period.
It’s clear from all this information then that despite cryptocurrencies like Bitcoin holding steady during this period, investors still need be wary about investing due to potential consolidation risks posed by companies such as Silvergate winding down their operations or shutting down completely