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Silvergate Failure, Fed Rate Hike Reasons for Bitcoin and Ether Slump

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By Augustine Mbam - - 5 Mins Read
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How us rates hike and silvergate crash are reasons for bitcoin's collapse
Credit: David McBee via Pexels

Another crypto crash might be in view after Bitcoin, Ethereum, and other top cryptocurrencies went down below expectations. In the Asian crypto markets, Bitcoin fell to near the US$20,000 support line. This is the first time since the year started that Bitcoin is reaching this support level. As expected, other altcoins were not left on the massive crypto crash as they all went down in price. Ethereum and the other top altcoins in the market quickly reacted to the Bitcoin price slump leading to a massive bearish trend all through the market. 

The major causes of the recent market downtime are Silvergate, who recently announced they would be undergoing a voluntary liquidation to save customers' funds. Also, the U.S. Federal Reserve Chair Jerome Powell warned this week that the federal government would soon increase interest rates to curb inflation. This negative news is currently affecting the state of the crypto market. Investors are pulling out massively and selling off things they have in their wallets. 

Silvergate Liquidation Announcement 

Silvergate Bank (Getty)

Silvergate announced they had voluntarily decided to liquidate the business entity to save customers' funds. 

In the announcement, the embattled bank said they had to take the hard decision to repay back customers who had their money with them. "In light of recent industry and regulatory developments, Silvergate believes that an orderly wind-down of Bank operations and a voluntary liquidation of the Bank is the best path forward. The Bank’s wind-down and liquidation plan includes fully repaying all deposits. The Company is also considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets."

"In connection with the above: Centerview Partners LLC is acting as financial advisor, Cravath, Swaine & Moore LLP is acting as legal advisor and Strategic Risk Associates is providing transition project management assistance. All other deposit-related services remain operational as the Company works through the wind down process. Customers will be notified should there be any further changes," Silvergate added. 

Federal Reserve to Hike Interest Rates 

U.S. Federal Reserve Chair Jerome Powell said in the latest monetary Congress that the government might be forced to increase interest rates to curb inflation in the country. According to Jerome Powell, they needed to increase interest rates by more than they have been doing in the past months if they needed quick results. 

"With inflation well above our longer-run goal of 2 percent and with the labor market remaining extremely tight, the FOMC has continued to tighten the stance of monetary policy, raising interest rates by 4-1/2 percentage points over the past year. We continue to anticipate that ongoing increases in the target range for the federal funds rate will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In addition, we are continuing the process of significantly reducing the size of our balance sheet," Jerome Powell said. 

The chairman of the US Federal Reserve said it will take some more time for the country to set the full effects of the positive policies they have been making." It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation," Jerome Powell said. 

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