What happened
It's absolute carnage once again in the world of cryptocurrency. As of 2 p.m. ET, popular tokens Shiba Inu (SHIB -0.31%), ApeCoin (APE 2.03%), and XRP (XRP -0.52%) each declined by more than 4% over the past 24 hours. The moves seen among these significant projects aligns with the broader market move over this time frame.
That said, the daily decline for these tokens did approach double-digit levels this morning. Much of this has to do with ongoing contagion fears tied to the collapse of crypto bank Silvergate Capital, which has been exacerbated by news of another (even bigger) collapse of a financial institution, as SVB Financial officially got taken over by U.S. regulators today.
While the majority of activity in the crypto sector is decentralized, and a significant amount of trading activity happens on nonbank centralized and decentralized exchanges, Silvergate did provide traditional finance rails for the sector, and Silvergate did provide venture debt financing for many companies in this space. Thus, the market is viewing these collapses as indicative of potential systemic risk, at least when it comes to the crypto market, right now.
So what
Today's release from the Federal Deposit Insurance Corp. (FDIC) does spell out some recourse for those banking with this financial institution. Those with deposits up to $250,000 will reportedly be made whole by Monday morning, and all bank branches will reportedly open on Monday morning as well.
However, the ultimate knock-on effects for the broader crypto sector remain unknown. If venture funds operating in this sector don't have access to their funds for any extended period of time, investment in various growth projects in this space could be stunted. Additionally, the lack of liquidity entering this sector from institutional investors and others who previously used Silvergate could lead to continued momentum to the downside for these projects.
Now what
For Shiba Inu and ApeCoin, two of the more speculative meme tokens in this sector, the higher-volatility nature of these tokens doesn't bode well for expectations of how these digital assets will perform over the near and medium term. And while it's probably too soon to fully comprehend what the effects of these financial calamities will be, it's clear that less capital flowing into the sector may have outsized impacts on the more speculative corners of the crypto market.
XRP has its own set of concerns from regulators, as the project's parent company Ripple nears the end of its long-standing lawsuit with the Securities and Exchange Commission (SEC). Thus, the added sector-specific contagion fears these financial collapses provide today may be too much risk for certain investors to handle right now.
