Silvergate, the once-premiere crypto bank, is preparing for the shuttering of its very own doors as they struggle to maintain its clemency amidst the FTX debacle and questions surrounding its business practices.
Because of the latest findings surrounding Silvergate, the crypto community, including some of the heavyweights, have begun closing their relationship with the once former glorious banker.
Coinbase Global Inc and Galaxy Digital on Thursday dropped Silvergate Capital Corp as their banking partner after the lender’s latest filing raised questions about its ability to stay in business.
Is FTX to Blame for Silvergate’s Demise?
Coinbase and Galaxy Digital also said they had minimal exposure to Silvergate, which has been plunged into a crisis stemming from a bank run after the collapse of major crypto exchange FTX in November spooked investors. And continues to scare investors, with the latest being Silvergate’s very own business partners.
Just this Wednesday, the California-based crypto bank, Silvergate delayed its annual report and said it had sold additional debt securities and investments that can include bonds and notes to repay debts this year and was evaluating the impact of these events on “its ability to continue as a going concern.”
Stablecoin issuers Paxos and Circle, Cboe’s digital asset exchange, crypto exchange Gemini and European crypto exchange Bitstamp also suspended their partnerships with Silvergate.
“It is now getting increasingly difficult for crypto companies to establish or sustain relationships with a U.S. bank,” said Ivan Kachkovski, FX and crypto strategist at UBS.
“This could potentially mean a certain trend towards crypto offshorization, at least until a more comprehensive regulatory framework is established in the U.S.”
Silvergate’s shares ended the day at a record low of $5.72, down more than 97% from the stock’s all-time high in November 2021.
Silvergate, one of the most influential banks in the digital asset industry, now draws the ire of lawmakers in the United States over its dealings with FTX and Alameda. And how it handled its relationship with both of them following the groundbreaking report from Coindesk on the FTX and former billionaire Sam Bankman-Fried.
In January, a bipartisan group of U.S. senators sent a letter to Silvergate, asking for details of the bank’s risk management practices and alleging its due diligence processes “failed miserably.”
Thoughts From a Digital Asset Broker
“This does not bode well for the whole crypto market, as Silvergate is a major player in the space,” said Marcus Sotiriou, an analyst at digital asset broker GlobalBlock.
“The result of this remains to be seen, but we could potentially see a contagion from crypto businesses who use Silvergate Bank being impacted,” Sotiriou added.
Silvergate was founded in 1988 and then later ventured into crypto in 2013 when Bitcoin was already established and before Ethereum had made its debut on the crypto stage.
Just How Much Did Silvergate Lose?
After high-interest rates and the bankruptcy of FTX rattled crypto markets last year, the company reported a loss of $1 billion for the fourth quarter and slashed its headcount by 40% in a bid to cut costs. Coinbase, which was earlier one of Silvergate’s top clients, said it would partner with Signature Bank and others to facilitate cash transactions for institutional clients who had parked funds with the exchange.
Silvergate “to some degree has become a lightning rod victim of circumstances, given industry news flow over the last few months,” Canaccord Genuity analysts wrote in a note after the disclosure.
