Notes 3/3: Bitcoin and Ether Price

Bitcoin price, which had been range bound in the last week, plunged by 5.5% in 15 mins to $22,113 yesterday. The cryptocurrency’s latest price action is being blamed on Silvergate Bank’s problems. As of this writing, it is changing hands for $22,354.40, down 4.3% from its price a day earlier.

The bank, which derives a significant chunk of its business from the crypto industry, told regulators late Wednesday that it would miss the deadline for filing its annual report. The California bank also warned that it was “less than well-capitalized” and expressed concern about its ability to operate in the future.

A Swift Response

Silvergate reported losses of $1 billion last quarter. During its previous earnings call, the company had offered itself as a prime acquisition candidate for banks interested in expanding their operations into cryptocurrencies.

While reaction from crypto markets was delayed, the blowback to Silvergate’s problems has been swift from inside crypto. On the business front, cryptocurrency businesses and exchanges have rushed to severe ties with it. Among notable crypto companies that have stopped doing business with the bank are crypto exchange Coinbase, stablecoin issuers Circle and Paxos, and investment firm Galaxy Digital. [It is worth noting that these companies are facing problems – legal and financial – of their own in a crypto ecosystem that has been under siege from regulators since the start of this year].    

Meanwhile, a possible crash at a key bridge between cryptocurrencies and fiat has spooked traders. CoinDesk reports that bitcoin futures liquidations amounting to $62 million occurred during trading in Asian markets. In the past, most price action related to the cryptocurrency has occurred after markets in the West, notably America, open. Bitcoin’s latest price movement has shifted its bottom, opening the possibility for a further downward trajectory.

A Future Recovery?

That downward spiral will not last long, though. Stablecoin issuer Tether announced this morning that it was moving 400 million USDT from the TRON blockchain to Binance.

That combination of Tether and Binance is good news for bitcoin price. The cryptocurrency’s biggest trading volumes are at Binance, the world’s top cryptocurrency exchange by trading volume, where it trades heavily against Tether’s USDT.

In the past, Tether has been charged with inflating bitcoin price by increasing the supply of its stablecoin. While it has the widest reach amongst all crypto coins except bitcoin, Tether is notoriously difficult to redeem. The easiest route to exiting it into fiat currency lies through bitcoin itself. An increased supply at Binance means more trading against bitcoin at the exchange and portends a price bump for the cryptocurrency in the coming days.

Ether Price Action

The price for Ethereum’s ether also fell by 5.3% to $1553.84 during yesterday’s market crash. As of this writing, it has recovered somewhat to $1,567.93.

Most price action for ether will be related to staking this month because its developers have promised to enable smart contract withdrawals for staked ether. Considering that roughly 16 million ether – representing roughly 13.28% of its total supply – is staked, the ability to withdraw and, subsequently, sell staked ether could have catastrophic effect on its price.

But developers have said that staking withdrawals will be restricted to six validators per epoch in Ethereum’s cycle. This means that a maximum of 1350 validators per day will be allowed to withdraw or only about 43,200 ETH will be made available to markets on a given day.

Selling Pressure

There is, of course, the possibility of selling pressure coming from other quarters. Bankrupt crypto lending firm Voyager Digital was recently allowed to sell its crypto holdings by a court and has been disposing them off at a fast clip. Ether worth $268 million is its top holding.

It should also be interesting to see how the rules for withdrawals play out amongst validators. Staking, like most crypto businesses and activities, is heavily concentrated amongst a few players. As of this writing, Lido is the biggest staking platform for ether and holds more than 31% of all staked ether. Three cryptocurrency exchanges – Coinbase, Binance, and Kraken – hold a further 25%.

That means roughly 57% of all staked tokens are divided between four platforms. Out of these, Coinbase is the only platform that is regulated, meaning we have a very small window – an aperture mostly – into how withdrawals of staked ether affect its price.

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