Why Is Bitcoin Down Today?
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Crypto markets are in chaos once again, and the price of Bitcoin (BTC) has fallen nearly 11% this week.
The cause of the most recent disruption: the coming liquidation of crypto-friendly bank Silvergate. This news comes on the heels of the U.S. government moving $1 billion in seized Bitcoin to Coinbase-controlled wallets on Wednesday.
In addition, a lawsuit filed Thursday afternoon against crypto exchange KuCoin by New York State Attorney General Letitia James caused the world’s second-largest cryptocurrency by market capitalization, Ethereum (ETH), to drop more than 8% as well.
In the lawsuit, James argues that certain coins traded on KuCoin should have been registered as securities. She included ETH by name in her suit.
Along with these slides in the world’s two largest cryptocurrencies, other altcoins followed suit. Cardano was down nearly 9% on the week, Polygon (MATIC) lost almost 11% and memecoin Dogecoin (DOGE) was down more than 14%.
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What Happened to Silvergate?
On Wednesday, Silvergate announced that it intended to write-off its assets and wind its business down. This news came on the back of rising U.S. interest rates over the past year causing an overall crypto selloff as well as the collapse of crypto exchange FTX, which had been a key client of the crypto-friendly bank.
Customers pulled more than $8 billion out of Silvergate’s coffers since the collapse of FTX in November 2022. In fact, the bank held a mere $4.6 billion in cash at the end of last year.
In recent weeks, other major crypto players—such as Coinbase, Galaxy Digital, Paxos and Circle—all scrambled to distance themselves from the bank. After these moves, Silvergate was forced to close its Silvergate Exchange Network, a major crypto payment hub.
Silveragate shares are down more than 82% year to date.
U.S. Government Moving $1 Billion in Bitcoin
At the same time as the crypto world watched the unwinding of Silvergate, the U.S. government has moved more than $1 billion in Bitcoin to new wallet addresses, including one owned by crypto exchange Coinbase.
This led to crypto traders fearing that the U.S. government might be poised to release a portion of this confiscated Bitcoin onto the open market.
Although that action wouldn’t follow past precedents set by the government’s handling of digital assets, the fears of a supply glut haven’t stopped Bitcoin’s price from tumbling in recent days.
Ethereum Has Its Woes As Well
In addition to the headwinds Bitcoin is facing, the world’s number two cryptocurrency by market cap, Ethereum (ETH), is facing its own problems.
New York State Attorney General Letitia James filed a lawsuit Thursday afternoon against crypto exchange KuCoin, which has caused Ethereum to drop more than 8% as well.
In the lawsuit, James argues that coins such as Ethereum, TerraUSD (UST) and Terra-Luna, which are all traded on KuCoin, should have been registered as securities. This suit is the first time that a U.S. regulator has claimed in court that ETH is a security.
The suit argues that under the Martin Act, a more than century old anti-fraud law in New York State, the attorney general can bring civil and criminal charges against the exchange.
ETH, UST and Terra-Luna should have been labeled as securities, the suit claims, due to the fact that their prices are all dependent upon the efforts of others, such as ETH co-founder Vitalik Buterin.
Like Bitcoin, Ethereum is down almost 10% over the past five days as well. However, both BTC and ETH are still up more than 20% and 17% respectively year to date.
