Bitcoin Takes a Dive: What Caused the Drop Below $20,000?

On March 1st, the crypto-friendly bank, Silvergate, announced that it was delaying the filing of its annual 10-K report. This caused the bank's stock price to plummet by over 30%. In its statement, the bank explained that it had sold additional debt securities earlier in the year and was expecting to record further losses in the coming months. The day after the announcement, the price of Bitcoin fell from $23.5k to $22.2k. 

It's not surprising that the famous FTX exchange was involved in this situation since it was one of Silvergate's clients. As a result, investors withdrew over $8 billion from the bank, which caused its financial situation to worsen.

On March 8th, Silvergate announced its intent to wind down operations and voluntarily liquidate, and some cryptocurrency exchanges stopped accepting USD deposits as this function was only possible through the bank.

On March 7th, Federal Reserve Chairman Jerome Powell gave a speech commenting on the state of the market and sharing his perspective on the future of monetary policy. He acknowledged that the country's economy is performing well, but inflation is not decreasing as quickly as he would like. 

As a result, Jerome Powell believes that interest rates may need to be raised higher than previously anticipated. The market interpreted this as a negative signal, causing the price of Bitcoin to drop by several percentage points. This is because the actions of the Federal Reserve decrease the amount of money in circulation, which reduces the number of people interested in investing their savings in high-risk assets like cryptocurrencies. 

On March 9th, the New York Attorney General's Office filed a lawsuit against KuCoin, a cryptocurrency exchange, accusing it of selling unregistered securities, specifically tokens like ETH, LUNA, and TerraUSD.

This is a significant case as it's one of the first times a regulator has argued in court that ETH should be considered a security. The lawsuit alleges that KuCoin should have registered in the state to be authorized to sell these assets. Additionally, the program Kucoin Earn, which involves lending and staking, was also deemed to be a security. 

These events caused Bitcoin to drop below the $21,000 mark. The lawsuit is just one of the factors that may have contributed to this decline in value.

On the same day, US President Joe Biden suggested increasing the country's budget in 2024 by imposing taxes on cryptocurrency miners. The proposal is to levy a 30% tax in addition to their electricity expenses.

It's worth noting that Bitcoin miners currently do not enjoy high profits, and their prospects are not looking too bright. You can read more about this in a separate article on our website.

The situation surrounding Silicon Valley Bank dealt a major blow to the price of Bitcoin. On March 10th, news broke that the bank was in talks about a potential sale after their attempts to raise capital had failed. This led to a 60% drop in Silicon Valley Bank's shares, and later that day, the California Department of Financial Protection and Innovation decided to shut down the bank.

On March 11th, it was revealed that a significant portion of the reserves of the stablecoin USDC was held in Silicon Valley Bank. Circle, the issuer of USDC, made an official statement about this. As a result of these events, the stablecoin lost its peg to the US dollar and dropped by 15%.

It was also discovered that some cryptocurrency startups and even venture capital funds that invest in crypto projects had funds held in Silicon Valley Bank

It seems that the US banking system was the main reason for the recent market downturn, with the stock prices of all banks falling after the high-profile closures of Silvergate and Silicon Valley Bank. In response, the US government has called an emergency meeting on March 13 to address the situation.

The Federal Reserve System's monetary policy is likely a contributing factor, as it has been consistently raising interest rates, which in turn increases interest rates on loans. Additionally, regulators have played a significant role in reducing cryptocurrency prices.