$70 billion was wiped off the crypto market in 24 hours

Bitcoin saw an 8% drop below $20,000, its lowest in two months, due to a stock market sell-off in the U.S. and the collapse of a crypto-focused lender. Over $70 billion was wiped off the cryptocurrency market in the 24 hours that followed.

Prices for both Bitcoin and Ethereum were down 2.6% and 2%, respectively. The movement of cryptocurrency prices is closely tied to the performance of the Nasdaq, which saw a significant dip on Thursday.

On Tuesday, U.S. Federal Reserve Chairman Jerome Powell suggested interest rates could remain higher than projected. Higher interest rates have had a negative effect on risk assets such as stocks and cryptocurrencies.

“There is just little reason to buy bitcoin now as the market is saturated with negative developments, not just specifically for the crypto industry, but also for the wider financial market as well,” Yuya Hasegawa, an analyst at Japanese crypto firm Bitbank, told CNBC via email.

Banking worries

Silvergate Capital, a key lender to the cryptocurrency industry, has taken the dramatic step of winding down its operations and liquidating its bank. This development is contributing to an uncertain outlook for crypto prices in the near future.

Silvergate saw its downfall due to the ripple effects of FTX. As a major customer of Silvergate, their collapse has brought about significant consequences for the entire cryptocurrency industry.

Silicon Valley Bank recently experienced a significant financial setback, releasing $21 billion worth of holdings at an estimated loss totaling $1.8 billion. As one of the most important banks in tech start-up funding and venture capital across the United States, this substantial blow serves as a reminder that nothing is certain regarding investments – regardless if they have led innovation for decades.

SVB is experiencing the effects of a sluggish technology funding environment and an unsteady macroeconomic climate. VCs have become increasingly cautious due to rising interest rates, prompting them to reassess their asset sale decisions.

Silvergate and SVB, two prominent financial institutions, faced losses when the Federal Reserve increased interest rates. This caused a decrease in the value of their U.S Treasury investments requiring them to offload these bonds at an unfavorable rate for capital preservation.

“Overall, sentiment seems to have turned quite bearish given a combination of global macro and interest rate rises but also the exposure many banks probably have to long-duration securities,” Vijay Ayyar, vice president of corporate development at crypto exchange Luno, told CNBC via email. It is considered the backbone of the venture capital industry in the U.S.