A selloff in Bitcoin accelerated as sentiment in digital assets soured following the collapse of crypto-friendly bank Silvergate Capital Corp. and news of a legal action brought by New York state against crypto platform Kucoin. A sudden plunge in a well-known exchange token linked to digital-asset entrepreneur Justin Sun added fuel to the decline.
(Bloomberg) — A selloff in Bitcoin accelerated as sentiment in digital assets soured following the collapse of crypto-friendly bank Silvergate Capital Corp. and news of a legal action brought by New York state against crypto platform Kucoin. A sudden plunge in a well-known exchange token linked to digital-asset entrepreneur Justin Sun added fuel to the decline.
Bitcoin fell for the fourth straight day, dropping as much as 8.8% on Thursday to trade around $20,000, its lowest level since mid-January. The losses mounted in the late afternoon in New York as the native token of the Huobi exchange plummeted following word that the New York Attorney General accused KuCoin of operating in the state without a license.
Read more: Crypto Exchange KuCoin Sued in New York’s Industry Crackdown
“It appears beyond coincidence that Huobi’s token would sell off after the NYAG sued KuCoin,” said Stephane Ouellette, chief executive of FRNT Financial Inc. “The market seems to be expressing that whatever issues the NYAG has with KuCoin might be applicable to Huobi as well.”
Meanwhile, the backdrop for the industry has not been rosy — renewed turmoil in a sector already rocked by a series of blowups has put some investors on edge. The latest causality involves Silvergate, which announced plans Wednesday to wind down operations and voluntarily liquidate its bank. Its unraveling comes at a time of heightened regulatory scrutiny of the industry. Meanwhile, losses in the US equities space also amplified amid a selloff in the banking sector.
“It’s hard to make a fundamental argument for crypto here, just given all the uncertainty — you don’t know what regulation is coming down the pike,” said Kara Murphy, chief investment officer at Kestra Investment Management.
Read more: Silvergate Plans to Wind Down Bank Operations and Liquidate
Across global markets, investors are also digesting the likelihood of higher borrowing costs — particularly in the US, as central bank officials aggressively work toward reining in surging inflation. That backdrop does not bode well for riskier investments like digital assets.
Spot volumes have dropped recently and are at two-month lows, down 21% in the past seven days, according to Vetle Lunde, senior analyst at K33 Research, which was formerly known as Arcane Research. The volatility in the past week was concentrated around one brief, sharp selloff last Friday as Silvergate’s troubles mounted, Lunde added, which “naturally disincentivizes” market activity.
Yet some market-watchers have noted that recent negative news hasn’t been hammering crypto prices as much as they have in the past.
Bitcoin has gained roughly 26% since the start of the year. It’s an impressive run, though the rally recovers only a sliver of the ground lost last year when the coin shed 64%, buffeted by the implosion of the Terra stablecoin, the failure of hedge fund Three Arrows and the spectacular collapse of the FTX exchange.
“Bitcoin is definitely in better shape than it was at the end of last year,” Fiona Cincotta, senior financial markets analyst at City Index, said in an interview. “I don’t think that it’s the start of a new extended fall lower yet, but that’s not to say that it might not come.”
For crypto market prices: CRYP; for top crypto news: TOP CRYPTO.
(Updates pricing throughout, adds Huobi move.)
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