• Bitcoin (BTC) is benefiting from instability in the financial system, falling inflation and regulatory overhang on stablecoins.
• Investors are shifting from higher beta or more volatile cryptocurrencies into BTC and from stablecoins to BTC.
• The Fed’s policy of raising rates has led to falling prices of Treasurys, lowering the value of USD and making BTC more attractive as an investment.
Bitcoin Benefits From Crypto’s Flight To Quality
Instability in the financial system is driving investors towards bitcoin, according to crypto-services provider Matrixport. Traders and investors have shifted away from both higher beta cryptocurrencies and stablecoins into bitcoin due to a variety of factors.
Surviving Falling Inflation
The Federal Reserve’s interest rate policy has severely damaged some investment portfolios and threatened the financial stability of the economy, leading many investors to flock towards bitcoin for safety. As long as these trends persist, bitcoin prices can stay high and continue rallying.
Stablecoin Regulatory Overhang
Regulatory scrutiny around Paxos Trust’s binance USD (BUSD) caused funds to move out of that currency into BTC, while Circle Internet Financial’s USD coin (USDC) lost its peg when money flowed out.
Falling Treasury Prices
The Fed’s policy of raising rates has led to falling prices in U.S. Treasuries which lowers the value of the U.S. dollar relative to other currencies – thereby making investments in other assets such as bitcoin more attractive.
The combination of these factors leads Matrixport researcher Markus Thielen to conclude that “investors have now woken up” regarding cryptocurrency investments – with bitcoin being one particular asset that benefits from this flight to quality.
• JPMorgan has reported that the termination of Silvergate Exchange Network (SEN) and the collapse of crypto bank Silvergate will cause a challenge for the crypto industry.
• Silvergate had provided services to more than 1000 institutional crypto market participants such as exchanges, miners, stablecoin issuers and fund managers.
• Replacing this instantaneous network for processing dollar deposits and withdrawals among crypto market participants will be difficult due to regulatory pressures, with some services migrating to other banks like Signature Bank.
Challenge for Crypto Industry
JPMorgan (JPM) said in a research report Thursday that the collapse of crypto bank Silvergate and the termination of the Silvergate Exchange Network (SEN) pose a challenge for the crypto industry. Silvergate had operated as a gateway for more than 1,000 “institutional crypto market participants including major crypto exchanges, miners, stablecoin issuers, market makers and digital asset fund managers that have been using its network to transfer fiat currency between their Silvergate accounts and the accounts of other Silvergate customers,” analysts led by Nikolaos Panigirtzoglou wrote.
Replacing this instantaneous network for processing dollar deposits and withdrawals among crypto market participants will be challenging given the current backdrop and the “general unwillingness of traditional banks to engage with crypto companies following the FTX collapse and given high regulatory pressures,” JPMorgan said. The entry of new depository institutions seems unlikely at present due to heightened regulatory scrutiny of cryptocurrency operations.
Some of the services provided by Silvergate will migrate to other banks such as Signature Bank, Provident Bancorp, Metropolitan Commercial Bank and Customers Bancorp, according to JPMorgan’s analysis. Some customers who left Silvergate have already announced they are migrating to Signature Bank; however its capacity to replace Silvergate would likely be limited due to market and regulatory pressure to reduce risks associated with cryptocurrencies.
JPMorgan also noted that general unwillingness from traditional banks towards engaging with crypto companies follows after FTX’s collapse which might have lead them into being cautious about taking up any risks associated with cryptocurrencies in order not face any losses or legal implications later on down line.
Heightened Regulatory Scrutiny
The heightened regulatory scrutiny on cryptocurrency operations is making it difficult for new depository institutions from entering in this space causing further difficulty when replacing an already existing platform like SEN which was providing services all across different sectors in relation with cryptocurrency operations.
• Silvergate Bank’s share price has plummeted over 50% after its crypto industry clients announced they would suspend business with the bank.
• The bank said it needed to answer requests from independent auditors and regulatory agencies, and it was facing potential inquiries from the US Department of Justice.
• Coinbase, Circle, Paxos, Crypto.com, Bitstamp, Cboe Digital Markets, Galaxy Digital and Gemini have all suspended their operations with Silvergate Bank.
Silvergate Stock Drops Over 50%
Silvergate Bank (SI)’s stock price has taken a beating on news that its cryptocurrency industry clients are suspending operations with the bank. The bank had previously warned of several headwinds they were facing including possible inquiries from regulators and the US Department of Justice as well as an audit request by its independent auditors.
Crypto Clients Fleeing Beleaguered Bank
Coinbase, Circle, Paxos, Crypto.com, Bitstamp, Cboe Digital Markets, Galaxy Digital and Gemini have all announced that they will no longer be doing business with Silvergate Bank due to these uncertainties surrounding the financial institution. Kraken is currently the only major crypto exchange continuing to use Silvergate after ending some transactions with rival Signature Bank (SBNY).
Review of Books With Auditors
Silvergate has been forced to delay filing its annual 10-K filing while they review their books with their auditors and answer any inquiries or investigations that may arise in connection with this review process. The bank also warned investors in a forward-looking statement that their ability to continue as a going concern over the next year may be affected by these events.
Repayment of Federal Home Loan Bank Loans
The bank further revealed that they may need to repay loans taken out last year from Federal Home Loan Banks which could put additional strain on their finances. As a result of this news and its impact on investment confidence in the company’s future prospects fo success; shares in Silvergate dropped more than 50% to an all-time low on Wednesday’s trading session.
Kraken Remains Loyal To Silvergate
Kraken remains loyal to Silvergate by continuing do business through them despite other companies leaving for greener pastures elsewhere; however no comment was given when asked about this situation specifically .