Bitcoin, Ethereum, Dogecoin and others bite dust as Silvergate pulls the rug out from under crypto business

Will Silvergate become the Watergate for cryptocurrencies, including Bitcoin? Speculations are rife as the crypto market is going through a bloodbath after Silicon Valley-based lender Silvergate Capital Corp decided to shut down and voluntarily liquidate.

The company also declared it would wind up its crypto banking business.

As a result, Bitcoin slid to its worst performance this year, going below the $20K mark after a 7% fall. Bitcoin is in such dire straits that the number of transactions for the cryptocoin is down by 17%.

The grim picture of Bitcoin can be visualised by the fact that its volume on a month-on-month basis in March has gone down from $36 billion to $25 billion.

Silvergate's own share has fallen by 97% from its peak of November 2021.  

The downfall can be noticed all across the cryptoboard as in the last one month, other popular cryptos like Ethereum (-19%), Dogecoin (-25%), and Solana (-27%) are also feeling the heat of instable crypto market conditions.

After Silvergate's collapse, the number of transactions for all the cryptos has gone down considerably.

However, analysts speculate that the lacklustre show of cryptocoins won't dent stablecoin's performance.

In fact, they predict that with the crash of Silvergate, people will be more inclined towards stablecoins, and their transactions will increase.     

Silvergate had been providing services for crypto users since 2016 and was a prominent customer of the FTX crypto exchange, whose sudden closure last year sent shock waves among crypto enthusiasts.

After FTX's fall from grace, it was speculated that its reverberations would be felt on Silvergate's existence sooner or later.

The inevitable happened on Thursday when Silvergate declared that it has lost the strength to support crypto exchanges.      

Why did Silvergate shut its shop?
Some of the biggest reasons for California-headquartered Silvergate's listless show was that it had less-than-adequate risk management.

Also, it was relying too much on volatile short-term deposits while investing and lending for a longer duration. In the fourth quarter, its net deficit was $1 billion.

Customer deposits had also decreased by 68% to $3.8 boillion. To recover this deficit, the company sold bonds worth $5.2 billion.

But it didn't bring Silvergate the expected results, and the company applied for a Federal Bank loan worth $4.3 billion. 

Regulators are probing Silvergate. The company last week did not report its annual filing with the Securities and Exchange Commission, and told to submit it by March 16.

Considering the company's financial situation, the commission warned that it could go out of business.

The news worked like a death knell for Silvergate as its two biggest crypto-industry clients, Coinbase and Paxos, pulled their deposits.

With its biggest supporters deserting the ship, Silvergate had no option but to call it a day. 

Will cryptocurrencies survive?

It's premature to say, but the closure of FTX and now the collapse of as big a lender as Silvergate are the two heaviest blows to cryptos since November 2021, when the cryptomarket was at its zenith.

It is yet to be seen whether cryptos' fortunes will dwindle the same way as the US Democratic Party's image took a hit after the Watergate scandal in the 1970s.