The “Silvergate effect” in the crypto market

El "efecto Silvergate" en el mercado cripto - DIG Fund

The “Silvergate effect” in the crypto market.

The shares of the so-called “Crypto Bank”, Silvergate (SI) have fallen 63% from Wednesday ($13.53) to today ($5.00), a product of its statements, last Wednesday, in which it requested two more weeks from the Securities and Exchange Commission (SEC) to file its 2022 annual report, which aroused suspicions, on the part of investors, about its continuity in the market.

The Bank, Silvergate Capital, domiciled in California, USA, was created in 1988 and it was not until 2019 that it opened its capital, publicly (IPO) on the New York Stock Exchange. It has been recognized since then for its active participation in the Crypto market, both as a creditor and as an investor. In February 2023, 72% of Silvergate’s shares were in a “short” position, meaning that a percentage of holders believed the value of the stock would fall.

In November 2022, Silvergate was linked to the collapse of the FTX exchange and is being questioned by the U.S. courts for “encouraging investment fraud on that exchange,” in violation of the Securities and Exchange Act of 1934. Due to the above, Moody’s Investors Services recently downgraded the Bank to “junk”.

What does Silvergate’s potential downgrade mean for the Crypto market?

At the moment, the total capitalization of the crypto market has fallen by 7% in March, although from January to the end of February 2023 it had increased by 40%. Bitcoin, meanwhile, whose dominance in the total crypto market is 42%, has seen a 7% drop in March as well, falling from $24,000 to $22,300 at this time. Its growth in unit value from January to the end of February was 44%. Finally, in the case of Ethereum, the price is down 7% as well, following the Silvergate news, and its growth, since January, had been 42%

Although the Silvergate news is not fundamentally positive, given the above analysis we could conclude that the market had anticipated the “Silvergate effect” by 85% since the previous November, since the fall, so far, has been only 15% of the growth obtained in prices since January. We will be able to justify this in the coming days by observing the market’s behavior in the wake of the aforementioned events.

We will keep you updated on further developments.