What happened
Cryptocurrencies continued their sell-off late Thursday and into Friday on fears that institutional risks continue to be high. Silvergate Capital's (SI) warning that it may not be able to keep operating as a going concern came out after the market closed on Wednesday, and that's still impacting trading nearly two days later.
The major cryptocurrencies are down Friday, but so are altcoins and meme coins. As of 12:40 p.m. ET, Dogecoin (DOGE -0.60%) had dropped by 5.4% in the prior 24 hours, Sandbox (SAND -1.08%) had fallen 7.6%, and Terra Luna Classic (LUNC -2.20%) was down 10.3%.
So what
Silvergate was an on-and-off ramp to crypto trading for many institutional investors, so its collapse could undermine faith in the industry. It's not surprising that values are falling as investors try to determine both the counterparty risks a Silvergate bankruptcy might hold, as well as the impact on future buyers.
It hasn't helped that some of Mount Gox's crypto assets long owed to creditors will be unlocked later this month, which could lead to billions of dollars in selling in the market.
In more positive news, Coinbase (COIN -3.24%) said it will acquire One River Digital Asset Management in order to increase its offerings to institutional clients. This may fill some of the void left by Silvergate, and will give Coinbase exposure to investment advisory services.
The impact on the prices of Dogecoin, Sandbox, and Terra Luna Classic may be significant if the pool of cryptocurrency buyers shrinks as the supply of tokens on the market increases. Dogecoin needs to move past meme coin status, and I don't think that's likely to happen in a declining market. Sandbox was actually doing a great job of getting institutions to invest in its ecosystem, and that may not be undermined. Terra Luna Classic, on the other hand, is just a speculative asset at this point.
Altogether, the market has seen the news of the last few days as very bearish, but none of it is all that surprising. Silvergate has been in financial trouble for months, and its warning that it may not survive as a going concern is just the latest step on the road to a likely bankruptcy filing.
Now what
Friday's declines were classic crypto volatility, and I wouldn't read too much into them. The market is flushing out weaker companies and cryptocurrencies, and that means that value will accrue to those that remain. Long term, that's a bullish prospect for the industry.
Unfortunately, I don't see Dogecoin, Sandbox, or Terra Luna Classic as leaders or likely long-term winners in the crypto market. They're meme coins or speculative assets, and if the crypto gains wider adoption, that's not where value will be generated.
Investors looking for better assets should look to market leaders that can thrive amid these collapses. A company like Coinbase is a great investment option. It has lower risk than a token and high upside potential if the industry eventually returns to growth.
