market

Silvergate tests the crypto market resilience

Bitcoin and Ethereum dropped 5% in a couple of hours in Asia early morning trading hours, as the market digested Silvergate’s distress.

March 3, 2023 - The Silvergate Bank told the SEC about its 10-K report delay yesterday, but the news really hit the crypto market in the early morning hours of trading in Asia. Bitcoin and Ethereum dropped 5% in a couple of hours, making BTC and ETH to fall to US$22.4k and US$1,570 price level. Such a price drop caused the liquidation of ~US$200mn in BTC long positions, draining over US$50bn from the crypto market. As a consequence, Bitcoin futures funding rates turned negative, meaning that the bears are dominating the market, for now. As we mentioned in yesterday’s post, the Silvergate demise could be not fully priced in by the market, being another resilience test for the industry.

The relevant crypto market drop occurred amid a series of potential negative events for the industry. On top of the Silvergate Bank financial deterioration, and an increasing pessimism regarding US inflation data, the Mt. Gox creditors may receive large Bitcoin reimbursements, which could be dumped in the market. The creditors of the crypto exchange Mt. Gox could recover some of their funds following a 10-year liquidation process soon. Some analysts argue that most of the creditors are crypto believers, thus, they would not sell their holdings. However, even a small fraction of these recovered funds could harm the market due to current low liquidity, in our view.

March has started off testing the crypto market resilience in technical and fundamental terms. Technically, Bitcoin prices seem to be facing strong resistance and support at US$25k and US$21k levels, respectively. We believe that the support level could be reached whether the negative newflow persists. Fundamentally, among the risks from late 2022, only Silvergate has partially materialized. Another relevant risk associated with the DCG group seems to be under control for now, after it disclosed its annual earnings release. However, DCG group’s subsidiary Grayscale has still been monitored as the discount price of Grayscale Bitcoin Trust (GBTC) trades as low as 46% to its NAV. All in all, we think that March could repeat history, ending up negative to the crypto market. Nonetheless, quickly overcoming these negative events may be healthy for the industry in the mid-term.

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