Crypto Bank Silvergate Shuts Down Operations
The crypto industry suffered a major setback with the announcement of the closure of Crypto Bank Silvergate Bank, the largest US bank focused on cryptocurrency customers. Despite its rapid growth over the past decade by embracing the banking business from growing crypto exchanges, the bank’s risky strategy ultimately proved fatal.
Crypto Bank Silvergate Rapid Growth
Crypto Bank Silvergate Bank grew rapidly over the past 10 years as it embraced the banking business from growing crypto exchanges. The bank was willing to provide services in an area considered too risky by many other banks and saw its growth balloon with crypto markets. However, the risky strategy ultimately proved fatal for the bank.
Collapse of FTX and Bank Run
Silvergate’s problems began with the collapse of FTX, a customer of Crypto Bank Silvergate, which spooked investors and led to an eventual bank run. Despite the bank’s limited exposure to FTX, the association was enough to cause concern among investors. In the months following the FTX collapse, Silvergate’s depositors withdrew funds from the bank, leading to an eventual bank run.
Yesterday, Silvergate got destroyed.
Today it is Silicon Valley Bank.
Hold on tight, folks.
— Gold Telegraph ⚡ (@GoldTelegraph_) March 10, 2023
Silvergate #crypto bank is collapsing! pic.twitter.com/ZUG4uial4S
— Coach, JV (@Coachjv_) March 9, 2023
Federal Courts Begin Hearings on Bitcoin ETF
However, the news is not all bad for crypto investors. On Tuesday, federal courts began hearings for a trial against the SEC regarding its position on a Bitcoin ETF. An ETF is a stock that tracks the price of a group of assets or another, non-stock asset. At issue is the future of a financial instrument that would allow retail and institutional investors to buy crypto in their stock brokerage account.
Analysts Predict Bitcoin ETF Approval
Although this might not sound like a big deal, a Bitcoin ETF would open the floodgates to other crypto ETFs, allowing investors to more easily buy crypto in their retirement accounts and reduce the complexity for institutional investors (like pension funds and endowments) to make their first investment in crypto. Analysts believe that a Bitcoin ETF has a 70% chance of being approved. On the first day of the hearings, the federal judges asked tough questions of the SEC lawyers.
Greyscale Bitcoin Trust Shares Gain Value
That news caused shares to gain value for the Greyscale Bitcoin Trust (GBTC), the firm pushing the lawsuit against the SEC. As you’ll remember, I recommended GBTC several months ago as a way to buy discounted Bitcoin. At the time, you could essentially buy GBTC and receive 2 bitcoin for the price of 1. That discount narrowed this week: it’s now closer to buy 2, get 1 free.
Investors may know as soon as the third quarter whether Grayscale can convert its mammoth Bitcoin trust into an ETF https://t.co/sEFG6WV57u
— Bloomberg Crypto (@crypto) March 9, 2023
Potential Winners in Court Case
Investors in the Greyscale Bitcoin fund and the Greyscale Ethereum fund (ETHE) could ultimately be the biggest winners in the court case. If a crypto ETF is approved, these companies will no longer be able to offer a discount to any new investors.
At this point, unless you’re thinking about buying crypto on an exchange like Coinbase, it is not recommended to rush to buy GBTC or ETHE. The discount will probably increase over time as the court case drags on in the coming months, so there will be plenty of buying opportunities. However, unless you plan on using your Ethereum for DeFi or NFTs, it is recommended to skip Coinbase for buying Bitcoin or Ethereum and get a better deal through GBTC or ETHE.
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(Crypto Bank Silvergate)