Bitcoin took a beating yesterday as crypto bank Silvergate's survival warning led to a stampede of customers away from one of the industry's biggest fiat on and off-ramps.
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Bitcoin fell as much as 6% on Thursday while Ether tumbled 5% as the fallout from top crypto bank SIlvergate's warning that its survival was in jeopardy became an increasingly self-fulfilling prophecy.
Led by top U.S. exchange Coinbase, a virtual Who's Who of top crypto firms announced they were cutting ties with the embattled bank.
By the end of the day, these included crypto investment firm Galaxy Digital; stablecoin issuers Circle and Paxos; and exchanges Gemini, Crypto.com, Bitstamp and Cboe Digital Markets. USDT stablecoin issuer Tether announced that it had no exposure to Silvergate.
The results was a selloff that rolled across the broader crypto markets, with almost all of the top 20 non-stablecoin cryptocurrencies down substantially going into March 3.
Problems began when the bank said in an SEC filing it might be "less than well-capitalized" and might not survive another 12 months.
Broader Troubles
The problem is not just that Silvergate is one of the most popular fiat on and off-ramp providers, it is that its growing troubles come as bank regulators have been taking steps to push other mainstream banks away from accepting crypto-industry clients.
Citing growing "uncertainty" about the ability to move dollars and other currencies onto and off of exchanges, Markus Thielen, head of research at crypto exchange and financial services firm Matrixport, told Cointelegraph that "there are now wider industry concerns that U.S. regulators are trying to cut off further banking relationships between crypto firms and FDIC-insured banks."
That's on top of increasingly aggressive moves by the Securities and Exchange Commission to force exchanges to register as broker-dealers and more generally throw up roadblocks in front of the industry.
On Thursday, a pair of top Congressional Republicans warned that a recent move by the agency regarding the way firms custody cryptocurrency would have the effect of making crypto customers at greater risk in the event of bankruptcies — effectively forcing them into a situation much like that facing clients of crypto lender Celsius.
Because of the way it took custody of customers' assets, Celsius customers are at the back of the line to recover assets in the firm's bankruptcy proceedings. With the new rule, Sen. Cynthia Lummis and Rep. Patrick McHenry warned that would be the norm.
