Silvergate Collapse Dragging Down Bitcoin Volume

Bitcoin traders are taking a breather and considering their next steps as the market digests the collapse of Silvergate Bank, which culminated in its “voluntary liquidation” Wednesday U.S. time.

CryptoQuant data shows that transfer volume, denominated in BTC, is down 35% over the last 24 hours. At the same time, the total number of transactions on the Bitcoin blockchain has dropped by 17% during this same time period, and the number of active addresses has fallen by 10%.

For the month of March, bitcoin trading volume has come in at an average of around $25 billion, according to data from CoinGecko, versus around $36 billion for the month of February.

“Coupled with the drop in the price of bitcoin, we have seen a noticeable drop in trading volumes, too, across the ecosystem when news about Silvergate’s financial difficulties broke,” Guilhem Chaumont, CEO of Paris-based market maker and brokerage Flowdesk, told CoinDesk in a note.

Silvergate was one of the major fiat payment rails in the crypto market, offering traditional banking services to exchanges and market makers. As such, trading volumes have dwindled since Silvergate’s problems became public.

Chaumont said trading has since then been quiet, and suggests the first shock has been priced in while traders digest the situation.

“It certainly has a ‘calm before the storm’ feel to it. So the market is not shaking it off – FTX has made us all very much aware that anything can happen,” he said. “However, the situation can still go either way – meaning that if news about a reassuring resolution came, the confidence that characterized the first two months of 2023 could return.”

Silvergate’s demise might accelerate the shift toward trading pairs denominated in the dollar-pegged stablecoins like tether USDT$1.0002.

"With the death of Silvergate, stablecoins will likely become even more ubiquitous among traders. Rather than deposit your dollars with an exchange, you deposit them with a stablecoin issuer, receive stablecoins and then transfer those to an exchange," analysts at Paris-based crypto data provider Kaiko said in a note on Monday.

Most of the trading volume is already concentrated in USDT pairs. Data tracked by Kaiko show BTC/USDT pairs account for over 90% of the trading volume, up from 3% in 2017.

At the same time, the number of new crypto-USDT pair listings has been falling.

USDT daily volume is currently at an average of $32.3 billion per day so far in March, according to CoinGecko data, down from an average of $47 billion a day during February.

Omkar Godbole contributed reporting.