There’s more pain for Bitcoin (BTC) investors as the price of the leading cryptocurrency crashed below $20,000 on Friday.
At the time of this writing, Bitcoin is down 8.3% over the day, trading at $19,900 the level last seen on January 13, according to Coingecko.
Ethereum (ETH) is following a similar pattern as the price of the world’s second-largest cryptocurrency is down 9.8% in the past 24 hours, changing hands at the nearly two-month low of $1,383.
In a remarkable change in fortunes for the broader crypto market, which kicked off the year with some hefty gains, pushing Bitcoin close to $25,000, the latest downtrend also saw the wider market capitalization of all cryptocurrencies fall below $1 trillion for the first time since January 19.
Bitcoin, Ethereum in freefall
The industry has been hit some serious headwinds in recent weeks, with the meltdown of the crypto-friendly Silvergate Bank, which entered into voluntary liquidation on March 8, arguably one of the key drivers behind the latest downturn.
Silvergate has been providing a convenient banking avenue for many crypto businesses, however, “without the ability to channel fiat currency into the crypto world, crypto looks more like a quiet pond than a sparkling fountain of innovation,” Matrixport head of research Markus Thielen said in his latest note.
“Silvergate has not only been the most important link between investors who wanted to channel money into crypto exchanges, crypto hedge funds, crypto venture capital funds, and crypto projects, but the bank also offered to settle balances between Silverbank clients at any time of the day, including weekends and public holidays,” he wrote.
Director of Research at Kaiko Clara Medalie echoed Thielen’s remarks, saying that “the Silvergate collapse has certainly had the largest impact on market sentiment.”
“When the news first broke, markets hadn't realized the extent of Silvergate's impact on the entire crypto ecosystem, but over the past few days, traders have priced the collapse in," Medalie told Decrypt. "There are wider fears that Silvergate's collapse could dampen bank's willingness to work with crypto firms, essentially pulling us back to pre-2017 when the industry struggled to form banking relationships.”
According to the Kaiko analyst, “with fewer fiat on-ramps, institutional investors will have a harder time deploying capital in crypto markets, which could have a wider impact on liquidity and market efficiency.”
Bearish pressure beyond Silvergate
Adding more pressure on the nascent industry, the U.S. Treasury Department on Tuesday proposed a 30% excise tax on the cost of powering Bitcoin mining facilities, while the New York Attorney General's office filed a lawsuit against cryptocurrency exchange KuCoin for allegedly violating securities and commodities laws in the state.
In the complaint, Attorney General Letitia James also alleged that Ethereum “is a speculative asset that relies on the efforts of third-party developers in order to provide profit to the holders of ETH,” and as such is a security.
“It is not surprising to see the recent plunge in the crypto market. President Biden's recent proposal to impose a 30% tax to reduce mining activity within the United States has undoubtedly played a significant role in this decline,” Jeff Mei, COO of crypto exchange BTSE, told Decrypt.
According to Mei, “this tax proposal has raised concerns among investors, who fear it could lead to decreased profitability and lower adoption of crypto mining in the U.S.”
Mei also cited the recent lawsuit filed against KuCoin by the NY Attorney General's Office and hawkish comments from Fed Chair Jerome Powell regarding a possible uptick in inflation among the reasons that have also contributed to the market's decline.
According to the COO, all these factors combined have created “a perfect storm,” which eventually led to the crypto market's biggest crash this year.
Yet, BTSE remains bullish on the long-term prospects of the crypto market.
“We see strides being taken in regulatory clarity and infrastructure creation around the world, especially in Asia, setting the industry on a great path for future innovation and adoption,” Mei told Decrypt.