The price of Bitcoin (BTC), the most popular cryptocurrency, fell below $20,000 on Friday, causing investors more pain.
At the time this article was written, Bitcoin was trading at $19,900, which is the same price it was on January 13.
The price of Ethereum (ETH), the second-largest cryptocurrency in the world, has gone down 9.8% in the last 24 hours, trading at $1,383, which is the lowest price in almost two months.
The crypto market as a whole started the year with big gains that brought Bitcoin close to $25,000. During the latest downtrend, the market capitalization of all cryptocurrencies fell below $1 trillion for the first time since January 19.
Bitcoin, Ethereum in freefall
In the past few weeks, the industry has been hit hard by bad news. One of the main reasons for the recent downturn may be the collapse of the crypto-friendly Silvergate Bank, which went out of business on March 8.
Many crypto businesses have been using Silvergate as a convenient way to bank. However, Matrixport’s head of research Markus Thielen said in his latest note that “without the ability to channel fiat currency into the crypto world, crypto looks more like a quiet pond than a sparkling fountain of innovation.”
“Silvergate was not only the most important link between investors who wanted to put money into crypto exchanges, crypto hedge funds, crypto venture capital funds, and crypto projects, but the bank also offered to settle balances between Silverbank clients at any time of day, even on weekends and holidays,” he wrote.
Clara Medalie, who is in charge of research at Kaiko, agreed with Thielen and said, “The Silvergate collapse has definitely had the biggest effect on market sentiment.”
“When the news first came out, the markets didn’t know how bad Silvergate would be for the whole crypto ecosystem as a whole. Over the past few days, traders have priced in the collapse, “Decrypt was told by Medalie. “There are worries that Silvergate’s failure could make banks less willing to work with crypto firms. This would bring us back to the time before 2017, when it was hard for the industry to build relationships with banks.
“With fewer fiat on-ramps, institutional investors will find it harder to put money into crypto markets,” said the Kaiko analyst. “This could have a bigger effect on liquidity and market efficiency.”
Bearish pressure beyond Silvergate
The U.S. Treasury Department proposed on Tuesday a 30% excise tax on the cost of powering Bitcoin mining facilities. At the same time, the New York Attorney General’s office sued cryptocurrency exchange KuCoin for allegedly breaking securities and commodities laws in the state.
In the complaint, Attorney General Letitia James also said that Ethereum is a security because it is “a speculative asset that depends on the work of third-party developers to make money for ETH holders.”
“The recent drop in the crypto market is not a big surprise. “President Biden’s recent plan to put a 30% tax on mining in the U.S. to stop it has definitely contributed to this drop,” Jeff Mei, COO of the cryptocurrency exchange BTSE, told Decrypt.
Mei says that investors are worried about this tax plan because they think it could make crypto mining less profitable and less popular in the U.S.
