Market Deep Dive: Market tanks after Silvergate Bank announces its closing

BTC$ and ETH$ are down 14.9% and 14.3% on the week. Thursday night was a bloodbath with $250m in long BTC positions liquidated.

On Wednesday night, Silvergate Capital Corporation, the holding company for Silvergate Bank, announced its intent to wind down operations and voluntarily liquidate the bank. This comes after the bank failed to deliver its annual report last week. The loss of Silvergate will reduce the efficiency of the market, drastically impacting the FIAT settlement layer.

This event likely started the selloff, but it feels like it was overdue. Equities have been suffering since the beginning of February, while crypto has been keeping up amidst the stronger dollar and rising treasury yields.

In addition, a New York Attorney General sued KuCoin for allowing investors in New York to buy and sell crypto without being registered in the State. Further allegations were made that Ethereum is a security, even though the CFTC chairman restated yesterday that it is a commodity. This was one of the first times a regulator is claiming in court that ETH is a security.

While we are on the topic of regulation, the Grayscale trusts seem to have the upper hand on regulators this week.

Grayscale initiated legal action against the SEC in June of last year, after its application to convert its Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF was rejected. On Tuesday, judges overseeing the lawsuit questioned the SEC’s reasoning for denying the Grayscale application, as a spot ETF would pose the same risk of fraud and manipulation as the futures ETF does, which is currently traded on the CME. It does seem, however, that oral arguments were in favour of Grayscale.

GBTC shares are now trading at a 34% discount, up from 46% at the beginning of March and 49% at its widest level.

From a market perspective, a spot ETF would allow a significant amount of people to invest in bitcoin. Then again, it would unlock a billion dollars worth of BTC held in the GBTC trust.

An interesting narrative to watch will be Ripple and their ongoing case with the SEC. Its XRP token went up 10% from Monday to Wednesday after the SEC’s weakness was exposed.

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