What’s going on with crypto bank Silvergate?

3 Mar 2023

Image: © Timon/Stock.adobe.com

The crypto-focused bank appears to be on the verge of financial collapse, while various exchanges have cut ties to protect themselves.

Silvergate Bank, which mostly deals in cryptocurrency, is facing a spiral of financial issues and a wave of clients cutting transactions.

The bank is more than 30 years old but began to focus on the cryptocurrency sector in recent years. It purchased the Diem cryptocurrency from Meta last year for $182m.

But – like many crypto-focused companies – the bank suffered losses in recent months as a result of its dealings with FTX , the crypto exchange that collapsed last year.

A recent filing with the US Securities and Exchange Commission (SEC) suggests that Silvergate’s finances are in disarray, with the company concerned about its ability to continue operating in the next year.

After this SEC filing, many crypto exchanges reportedly cut ties with the bank, suspending transfers and other business operations. The bank’s share price has also plummeted by more than 55pc, CNN reports.

What happened to Silvergate’s finances?

Silvergate said in its SEC filing that it would delay its annual 10-K, which is a report on a publicly traded company’s financial performance.

The crypto bank said its unaudited financial results for 2022 included a net loss “attributable to common shareholders” of $948.7m, a massive difference to the net income for shareholders of $75.5m in 2021.

Silvergate was hit by the aftershock of FTX’s collapse last November, after the exchange owed billions to creditors. The bank was forced to sell $5.2bn worth of assets at the start of 2023 after a large amount of customer deposits were withdrawn, The Guardian reported.

In the SEC filing, Silvergate revealed that it has been forced to sell more assets in February and expects to record “further losses” due to the “impairment on the securities portfolio”. The bank also said it is evaluating the ability to continue operating over the next 12 months.

“The company is currently in the process of re-evaluating its businesses and strategies in light of the business and regulatory challenges it currently faces,” Silvergate said.

Which crypto exchanges are cutting ties?

Following the SEC filing, it was reported that a wave of crypto exchanges have stopped operations with Silvergate.

The first of the exchanges that cut ties with the bank appears to be LedgerX, a survivor entity of the FTX collapse. The crypto platform announced earlier this week that it would switch to Signature Bank for its domestic wire transfers, Bloomberg reports.

On Twitter yesterday (2 March), crypto exchange Coinbase said it would no longer accept or initiate any payments with Silvergate “out of an abundance of caution”. Coinbase also said it has “de minimis corporate exposure to Silvergate”.

Coindesk reports that the only major exchange that has continued transactions with the bank is Kraken, while others such as Circle, Bitstamp, Galaxy Digital and Gemini have all cut ties with Silvergate.

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Leigh Mc Gowran is a journalist with Silicon Republic