The share price of U.S. cryptocurrency-focused bank Silvergate plunged nearly 50% in early trading Thursday after new revelations about the extent of its exposure to the collapse of cryptocurrency exchange FTX raised questions about its ability to survive.
On Wednesday, it delayed the release of its annual report and announced a new sale of assets to pay down debt, while warning that it was evaluating “its ability to continue as a going concern” in a filing with the SEC, the markets regulator. US financiers
Silvergate also hinted at increased regulatory scrutiny later in the filing, which it said could hurt its profitability.
It said its business could be adversely affected by “various litigation (including private litigation) and regulatory and other inquiries and investigations,” including with banking regulators, congressional committees and the US Department of Justice.
That warning sparked a flurry of activity, with major partners including cryptocurrency exchange Coinbase dropping Silvergate in a scramble for safety.
Coinbase, which used Silvergate to handle cash transactions for clients, said that “in light of recent developments and out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate.”
“Coinbase has a de minimis corporate exposure to Silvergate,” the company added in a tweet.
Shares of Silvergate fell nearly 50% to $7 in early trading on the New York Stock Exchange on Thursday after Coinbase’s announcement, before recovering slightly to $7.60. They had closed at $13.53 the day before. At the height of the cryptocurrency boom in late 2021, its share price had reached an all-time high of $219.75.
The bank, which is over 30 years old, shifted its entire business to serve the cryptocurrency industry in 2013 and has grown rapidly along with the sector.
But FTX’s collapse left him exposed, and in early 2023 he announced plans to sell $5bn worth of assets for cash, posting a nearly 20% loss in the process, to deal with “lower deposit levels.” sustained and maintain a highly liquid balance”.
after newsletter promotion
As cryptocurrency users had withdrawn funds from crypto exchanges, those exchanges had in turn withdrawn currency from their accounts at Silvergate, leaving it dangerously illiquid. He attributed those withdrawals to a “crisis of confidence in the entire ecosystem.”
But even as Silvergate struggles, other parts of the crypto sector are thriving. Bitcoin and Ethereum are up 40% since the start of the year, and even after a stumble caused by its relationship with the bank, Coinbase is up 76% year to date.
But according to Crypto Global industry newsletter, the rally is not leading to a burst of optimism. “Cryptocurrency founders and investors are, for once, adopting a measured mindset,” said writer Akash Pasricha.
