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March 6, 2023

Silvergate Bank Fears Push Cryptos Lower 

March 6, 2023

Crypto markets were thrown into a new realm of uncertainty last week as crypto bank, Silvergate, submitted a new SEC filing that documented fresh liquidity issues. 

As investors digested the news, crypto prices were sent reeling as crypto service providers cut ties with the bank. 

Elsewhere, Ethereum liquid staking hit a new daily high and XRP’s Ripple highlighted a new US Supreme Court filing that leans in favor of their ‘Fair Notice’ argument.

  • Silvergate bank fears cause bitcoin to fall for second consecutive week
  • Ethereum liquid staking provider receives largest daily inflow
  • Ripple’s Brad Garlinghouse states SEC case will be pivotal for entire crypto industry

Silvergate bank fears cause bitcoin to fall for second consecutive week

Crypto investors were thrown into another realm of uncertainty on Friday when one of the most influential banks in the digital asset space, Silvergate, announced that it was struggling following the downfall of failed crypto exchange, FTX. 

The bank remains a key institutional bridge between traditional finance and crypto.

Concerns were first raised by a filing that was submitted to the US Security and Exchange Commission (SEC) on Thursday. According to the filing, the bank stated it would not be able to submit its annual 10-K report on time. 

The bank stated that the late submission of the report is due to the current evaluation of its capacity to continue. It is currently “in the process of re-evaluating its businesses and strategies in light of the business and regulatory challenges it currently faces.”

In the filing, the bank detailed a loss of $1 billion in the fourth quarter of last year that resulted from the collapse of FTX. To remain liquid and avoid a bank run, Silvergate had to sell considerable assets at fire-sale prices throughout the months of January and February. 

As news of Silvergate’s troubles proliferated throughout the industry, service providers that utilize Silvergate’s banking services began to withdraw support – compounding fears.

With a lack of clarity on how many services and institutions may be affected, crypto markets nosedived on Friday. Bitcoin and Ethereum fell 4.8% and 4.6% respectively.

The world’s leading cryptocurrency found minor support at $22,300. However, if this support fails the next level of support sits at the conjunction between the November ‘22 swing highs and February ‘23 swing lows at approximately $21,400. 

In addition to the fallout in the crypto markets, Silvergate’s share price fell 40% during the week.

BTC/USD daily chart

BTC/USD daily chart

Ethereum liquid staking provider receives largest daily inflow of ETH

Lido Finance, an application that allows ETH holders to stake coins and earn interest without a lockup period, received its largest daily inflow last week.

According to a tweet from on-chain analytics provider, Lookonchain, 150,100 ETH – equivalent to $240 million – were staked via Lido Finance by Tron founder, Justin Sun. 

Shortly after confirmation from Lookonchain, Lido Finance confirmed via its own tweet that the protocol had just registered its largest daily stake inflow.

To stake ETH in Ethereum’s proof-of-stake blockchain, ETH investors usually have to hold a minimum of 32 coins and must stake the coins until the lockup period finishes. 

Liquid staking protocols, such as Lido Finance, allow ETH holders to navigate these restrictions and have, therefore, become popular within the crypto industry. 

Alongside confirming the largest daily stake inflow, Lido also highlighted that the large influx of ETH also triggered one of the protocol’s safety features called the Staking Rate Limit.

Due to the possible negative effects that such as large inflow can have, the protocol safety feature begins to limit the number of stETH – the derivative token that is issued to those staking ETH – that can be minted at any one time.

The continued popularity of Lido Finance is seen by many as a direct proxy for continued enthusiasm for the Ethereum ecosystem.

However, investors are now beginning to speculate if platforms, such as Lido Finance, will continue to see mass expansion after Ethereum implements the Shanghai upgrade sometime next month.

The Shanghai upgrade is set to remove the restrictions that come with staking ETH directly with the blockchain. 

 Tweet from Lido Finance confirming the largest daily inflow of ETH

Tweet from Lido Finance confirming the largest daily inflow of ETH

Ripple states that latest US Supreme Court Ruling is in their favor

On Friday, Ripple Labs highlighted that one of the latest US Supreme Court rulings supports one of their most crucial defenses in the case against the US Security and Exchange Commission (SEC).

Ripple Labs, the developers behind XRP and the XRP Ledger (XRPL), was handed a lawsuit in December 2020 from the SEC that claimed XRP was sold as an unregistered security. Since then, Ripple has continued to fight the SEC through the courts and has remained steadfast that XRP could not be considered a security.

One of Ripple’s strongest arguments in the case is the lack of clarity that the SEC provided as to whether XRP was ever viewed as a security. Something that is now referred to as ‘Fair Notice.’

Importantly, Ripple now argues that a new filing from the US Supreme Court supports this ‘Fair Notice’ defense and has, therefore, been submitted as a letter in the court case.

Ripple’s lawsuit has become one of the most pivotal in the industry, a fact that Ripple’s CEO, Brad Garlinghouse, reiterated in an interview with Bloomberg last week.

“The SEC bringing the case against Ripple was not really just a case about Ripple or about XRP. It’s really about the industry and how the SEC is kind of playing offense and attacking the whole industry. Two and a half years ago when it started, I’m not sure everyone fully digested that. And now that is widely understood.”

Garlinghouse went on to say that he believes it is an unhealthy way to regulate the industry. 

“Regulation through enforcement as opposed to what we are seeing in other countries where they are doing the work – they are codifying, they are creating a framework that allows an industry to grow while protecting consumers.”

Brad Garlinghouse conducting an interview with Bloomberg Television

Brad Garlinghouse conducting an interview with Bloomberg Television

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