Silvergate Exodus Worsens After Bank Questions Own Survival
Comment of the Day

March 03 2023

Commentary by Eoin Treacy

Silvergate Exodus Worsens After Bank Questions Own Survival

This article from Bloomberg may be of interest to subscribers. Here is a section:  

“In light of recent developments & out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate,” Coinbase said on Twitter. “Coinbase will be facilitating institutional client cash transactions with our other banking partners.”

Galaxy Digital, the crypto financial services firm founded by Michael Novogratz, said it continues to have no material exposure to Silvergate. The company took the action “to ensure client and firm assets are secure as part of our vigorous risk-management process,” its spokesperson said in an email.

Paxos issued a similar statement, and Gemini Trust Co., and Cboe Clear Digital LLC are all suspending transfers with Silvergate as well. Circle Internet Financial Ltd. said it’s “unwinding certain services” with Silvergate.

Bitstamp Ltd. went a step further, warning customers of potential losses if they make fresh deposits via Silvergate. “Bitstamp cannot be responsible for any funds deposited into the Silvergate bank account,” the crypto exchange said in a blog post Thursday. “If you do choose to deposit funds into this account, you do so at your own risk.”

Eoin Treacy's view

Silvergate extended what is an accelerating decline today. It is really not a good sign that other crypto firms are pulling business from the bank. Only three weeks ago institutional investors were lining up to put money into the company. That was based on the assumption its exposure to the demise of FRX was contained. Obviously, that is not the case. A significant stabilizing investment will be required to defray the possibility of bankruptcy.
Bitcoin is selling off as Silvergate liquidates assets and as fear of contagion grip the wider market. Today’s downward dynamic confirms near-term resistance in the region of the 1000-day MA.

We are about 13 months away from the next halvening. That has generally been a catalytic event for bulls and prices tend to bottom a year ahead of the event. If the past pattern of behaviour holds, this setback should find support above the November low.

A cautionary  note on that expectation is bitcoin’s trend is not nearly as consistent as it was in the past. The 2020/21 surge was smaller and it has now dipped back below a previous peak for the first time. Those are big trend inconsistencies that question whether historical precedent will prove reliable this time around. If it fails it will be a very clear sign that the big bull market is over.

I continue to hold my small 2024 call options position in Silvergate as a speculation that it will avoid bankruptcy. 

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