Crypto bank Silvergate announced on March 3 that it will suspend the payment network for its digital assets, claiming the termination is a “risk-based decision.” The move comes after the bank’s shares fell more than 59% in the past five days on fears of a possible bankruptcy.
A disclaimer on the Silvergate website stated:
“Effective immediately, Silvergate Bank has made a risk-based decision to discontinue the Silvergate Exchange Network (SEN). All other services related to deposits remain operational.
A second decision on the same day by US Judge Michael B. Kaplan said Silvergate had to return $9,850,000 deposited by BlockFi. According to documents Posted on BlockFi’s Turnaround Advisor Websitethe court ordered the bank to immediately release the funds following an agreement between the two companies in November 2022.
BlockFi is one of the crypto companies affected by the FTX crash last year, as was Silvergate. The crypto bank ran into liquidity problems due to the crypto bear market before being hit by significant outflows in Q4 2022, leading to a net loss of $1 billion.
In an effort to mitigate the effects of a surge in withdrawals, Silvergate allegedly borrowed $3.6 billion from the US Federal System of Home Loan Banks (FHLB), a consortium of 11 regional banks in the United States. which provides funds to other banks and lenders.
in a report Published by the US Securities and Exchange Commission (SEC), the digital asset bank highlighted strong deposit outflows and outlined steps taken to maintain cash liquidity, including wholesale funding and the sale of securities debt. The crypto bank is facing class action lawsuits over its relationship with FTX and Alameda Research.
Fears that a cash crunch could result in bankruptcy protection mounted this week, after Silvergate postponed filing its annual 10K financial report. Within 24 hours of the announcement, crypto companies Coinbase, Circle, Bitstamp, Galaxy Digital, and Paxos announced that they will be reducing their partnerships with the bank to some extent. MicroStrategy and Tether joined several companies that have publicly denied any significant exposure to the bank.
According to a February short interest report, Silvergate shares were the second shortest stocks in the United States, with more than 72.5% of its shares shorted, Cointelegraph reported.
Silvergate did not immediately respond to Cointelegraph’s request for comment.
