2 more alarms just went off for crypto, signaling a dire year ahead
Reuters/Brendan McDermid
- Silvergate crashed 48% on Thursday after the bank said it experienced a staggering $8.1 billion in customer withdrawals.
- Silvergate was forced to sell assets on its balance sheet at a steep loss to meet the withdrawals.
- The ongoing weakness in crypto spread to Coinbase on Monday, which fell 13% as trading volumes remain light.
The alarms are still blaring in the crypto market as 2023 gets underway, with confidence continuing to weaken and sentiment showing little sign of improving.
The waning confidence was on full display Thursday after shares of Silvergate Capital crashed 48%, while Coinbase fell as much as 13%.
Shares of Silvergate, the San Diego-based bank that bet its future on the crypto space, said it experienced a staggering amount of customer withdrawals in the fourth quarter of 2022. Customers withdrew $8.1 billion in deposits in a run on the bank after the implosion of FTX rocked the crypto market.
Silvergate said that due to the sharp increase in withdrawals, it was forced to sell billions of dollars of debt securities it held on its balance sheet at a steep loss of more than $700 million. The move allowed the company to increase its liquidity, which is mission critical in terms of shoring up confidence and preventing a further run on the bank.
Given the "economic realities" it is now facing, Silvergate said it would cut 40% of its staff, amounting to 200 employees.
Silvergate's Thursday loss of 48% sounds massive, and it is, but it's all relative when you consider that the stock is down 95% from its record high reached in November 2021. To further put that into perspective, on Wednesday, the stock finished down 91% from its record high. In other words, Thursday's 50% sell-off in the stock pushed the company's total drawdown down by 4 percentage points.
And it could get worse.
The shakiness of crypto confidence is impacting Coinbase as well, which fell on Thursday to levels just above its all-time low. The decline in Coinbase stock came after Cowen downgraded the company to "market perform" on concerns that retail trading volumes have not yet stabilized.
That's a problem for Coinbase because retail trading makes up the bulk of its profits.
"Coinbase's monthly trading volumes have seen a fairly consistent drawdown each subsequent month since November 2021, and there remains low visibility into either a stabilization or rebound in retail trading volumes over 2023 given the macro backdrop and FTX contagion risks on crypto asset prices," Cowen analyst Stephen Glagola said.
Shares of Coinbase are down 92% from their record high reached shortly after its IPO in April 2021.
Thursday's crypto developments reiterate for investors that even the companies thought to be of the highest quality in the crypto space are not immune to the ongoing deflating of the crypto bubble, which has so far erased more than $2.2 trillion in market value.