It’s getting to be an ominous January for the global cryptocurrency industry as two more alarms were raised during the first trading week of the year.
During trading on Thursday, January 5th, California-based financial holding company Silvergate Capital’s shares dropped by 48%, while those of crypto exchange platform Coinbase fell by nearly 13%. Both incidents reflect decreasing confidence in the sector, as well as a lack of improvement in terms of market sentiment.
The Silvergate Situation
Known as the San Diego bank that bet its future on the cryptocurrency sector, Silvergate reported a shocking number of customer withdrawals in the last three months of 2022.
Following the shocking implosion of FTX and the way it impacted the digital assets market, customers did a run on the bank, withdrawing a collective total of $8.1 billion since late November.
Due to the massive spike in withdrawals, bank executives say that they were forced to sell billions’ worth of debt securities that Silvergate was holding in its balance sheet at a massive loss of over $700 million in order to increase Silvergate’s liquidity. This was necessary in order to improve customer confidence and prevent another run on the bank.
Silvergate executives also announced that the bank would cut its current workforce by 40% – around 200 employees – in order to stay afloat.
But while a 48% loss sounds substantial, market watchers need to remember that Silvergate stocks are now down by 95% from the record high they hit back in late 2021. Likewise, the 50% stock sell-off on January 5th further drove Silvergate’s total drawdown lower by four percentage points.
What’s Up at Coinbase?
But if things are bad for Silvergate, they aren’t rosy either over at Coinbase whose shares plummeted dangerously close to its all-time low. Coinbase’s downgrade to “market perform” by investment firm Cowen on the 5th is seen as the primary reason for the drop.
Cowen representatives explained that the exchange was downgraded over concerns that its retail trading volumes continue to be volatile and stability may not be achieved any time soon. This poses a serious issue for Coinbase as most of its profits come from retail trading.
According to Cowen analyst Stephen Glagola, the exchange’s monthly trading volumes have been on a consistent drawdown since November 2021. Likewise, they have not seen signs of stabilization in Coinbase’s retail trading volumes for the new year. The palpable aftershocks of the FTX incident are seen as a prime factor given the potential risk on the value of cryptocurrencies and other digital assets.