LAST Thursday, another crypto-focused bank Silvergate Capital filed for a voluntary liquidation. Other companies running the same business like Coinbase and Galaxy Digital rushed to cut ties with Silvergate in order to protect their stock market prices.
Silvergate is a major crypto-lender with US$114 Billion assets parked at Signature bank. FTX crypto Exchange has been the largest customer to Silvergate. Following the recent debacle of involuntary liquidation of FTX filed by US Judiciary Court, the crypto markets have been very volatile and goes through a roller coaster trend.
In fact, Silvergate has been struggling for months. In addition to laying off 40 per cent of its workforce in January, the firm reported a nearly US$1 billion net loss in 4Q season following a rush for the exits at the end of last year that saw customer deposits plummet 68 per cent to US$3.8 billion.
To cover the withdrawals, Silvergate had to sell US$5.2 billion dollars of debt securities.
Taking a look at Bitcoin prices, the instrument hit a recent bottom in November 2022 at almost US$15,700 and recovered to US$25,000 in February 2023.
Basically, the risk assets like cryptos and junk bonds have been sold and abandoned by investors since the FED Fund rate has emerged above three per cent benchmark. This month, we foresee the FED policymakers will raise interest rate again by 0.25 to 0.5 basis points. That will be good enough to put a lid on all stock markets where blue chips are yielding much lower than the dollar returns.
In our opinion, crypto markets are entering into wintering season in 2023. Perhaps, regulators should take this time to tighten more rules and improve the security of investors funds when they take up these virtual assets in the next cycle.
It takes a conscientious warrior to safeguard all possible risk before winning a war. It also takes one error for a warrior to lose everything when the risk is not well addressed.
Dar Wong is a professional in securities and futures industry for more than 30 years. The opinions expressed are solely at his own. He can be reached at [email protected].