Bitcoin plummets to a two-month low, dropping by 8% below $20,000 on Friday, causing panic as over $70 billion was wiped out of the cryptocurrency market. The unexpected collapse of a crypto-focused lender, Silvergate Capital, and the closure of Silicon Valley Bank by the Federal Deposit Insurance Corporation (FDIC) have been identified as the main reasons behind the market crash.
The announcement of the collapse of Silvergate Capital sparked a wave of fear among investors as the lender was a major creditor to the crypto industry. FTX, one of the largest crypto exchanges, was a significant customer of Silvergate Capital, and its failure is having a domino effect on the entire industry.
Meanwhile, the closure of Silicon Bank, the largest US bank downfall since the worldwide financial crisis, has shaken the tech start-up space. SVB Financial’s parent company revealed that SVB Financial sold off $21 billion of its holdings, incurring a loss of $1.8 billion in the process, causing investors to become worried about the industry’s future. The bank was known to be one of the major players in the technology start-up space, and its sudden closure has led to a wave of panic across the industry.
The cryptocurrency market’s performance is closely tied to the US stock market, especially the tech-heavy Nasdaq. The recent announcement by US Federal Reserve Chairman Jerome Powell that interest rates may rise higher and remain higher than expected has negatively impacted risk assets like stocks and cryptocurrencies.
Analysts believe the saturation of adverse developments in the crypto industry and the wider financial market has significantly contributed to the current sell-off. The present economic condition, coupled with an increase in interest rates, has made venture capitalists wary, resulting in a cautious approach towards investing in the technology sector.
Silvergate Capital’s collapse and the closure of Silicon Valley Bank have brought the industry to its knees. However, some experts believe the cryptocurrency market’s resilience and innovative spirit will help it overcome this setback. As the industry waits to see what will happen next, traders hope the situation will stabilize and prices will begin to recover.
