The price of Bitcoin dropped more than 5% from $23,500 to $22,240 in an hour on Thursday amid volatility in the market triggered by concerns about US crypto-friendly bank Silvergate Capital.
It comes after fresh revelations about the scope of its exposure to the collapse of crypto exchange FTX late last year, raising questions about its own ability to continue operations.
The share price of Silvergate plummeted by nearly 50% in early trading after it delayed publication of its annual report and announced another sale of assets to repay debts.
Unsurprisingly, the worries about this financial institution have led to temporary turmoil in the market – as it would in any other market – and the usual the Bitcoin bashers using events as chance to attack the concept of digital currencies.
For me, there are three main takeaways from Silvergate debacle.
First, it highlights the increasing number of financial institutions that are offering crypto services as the demand for cryptocurrencies, such as Bitcoin and Ethereum, continues to grow. They’re recognising the enormous potential and are now offering services such as trading, custody, and lending.
In the US for instance, several large banks, including JPMorgan Chase, Citibank, and Goldman Sachs, have started offering Bitcoin-related investment products to their clients. In addition, payment giants such as PayPal, Square, and Visa have also started offering crypto services.
In Europe, several banks, including BNP Paribas, Société Générale, and BBVA, have introduced services. Meanwhile, in Asia, a host of major financial institutions have been quick to offer cryptocurrency services. For example, the Japanese financial services company SBI Holdings has launched several cryptocurrency-related businesses.
As cryptocurrencies become more mainstream, we expect to see even more financial institutions offering cryptocurrency services to clients.
Second, it underscores the importance of doing your own due diligence when getting involved with any crypto-orientated firm. For example, if you decide to start buying, selling or storing Bitcoin on an exchange, you should check out its security protocols, liquidity, fees, ownership, history, and user experience as essential checks.
And third, once again, the Silvergate crisis highlights that regulation is necessary. Regulators need to create clear guidelines and enforce them in order to protect both investors and financial institutions.
Crypto is here to stay and the market is only set to expand. Therefore, the crypto ecosystem should be held to the same rigorous standards, including those of transparency, as the rest of the financial system.
Naturally, there’s concern now for contagion threats. And as such, I’m calling on all industry participants and financial watchdogs to work together in order to further make the sector robust and foster trust by ways of sensible, workable regulation.