Silvergate, a California-based bank that heavily focuses on cryptocurrency, has seen a substantial drop in its stock value as it faces an uncertain future. The bank recently revealed that it was evaluating its ability to survive as a going concern, which caused its shares to lose almost half their value in early trading on Thursday.
This is a significant turn of events for Silvergate, which is one of the few US banks that focuses heavily on crypto. The bank has struggled as a result of the recent collapse of digital token prices and the implosion of Sam Bankman-Fried’s FTX empire, which was a banking client.
In a regulatory filing made on Wednesday, Silvergate announced that it would not be able to file its annual report with the Securities and Exchange Commission on time. The bank cited a further weakening of its capital position since last month, when it reported dismal fourth-quarter earnings, as the reason for missing the March 16 deadline.
The bank said it was “evaluating the impact that these subsequent events have on its ability to continue as a going concern for the 12 months following the issuance of its financial statements.”
Coinbase, a US-listed crypto exchange, stated on Thursday that it was no longer accepting or initiating payments to or from Silvergate “in light of recent developments and out of an abundance of caution.” Coinbase added that it had “di minimis corporate exposure” to the bank, and institutional client cash transactions would be facilitated through other banking partners.
Galaxy Digital, a crypto financial services company, also announced on Thursday that it had stopped accepting or initiating transfers to Silvergate. The company added that it had “no material exposure” to the bank.
“This action was taken out of an abundance of caution to ensure client and firm assets are secure”
Galaxy Digital
Silvergate’s shares were down by 46 percent in early trading in New York on Thursday.
The bank also revealed that its capital ratios would be impacted by fresh losses on its securities portfolio, which amounted to $5.7bn at the end of 2022, following further sales in January and February. The bank has been selling off securities to meet withdrawals from crypto customers amid what it has described as a “crisis of confidence” in the sector.
“These additional losses will negatively impact the regulatory capital ratios… and could result in the company and the bank being less than well-capitalised,” Silvergate said.
This warning marks a precipitous fall for Silvergate, which once supercharged its growth by pushing into cryptocurrencies. Many of the world’s top crypto miners, exchanges, and custodians used Silvergate to deposit and transfer billions of dollars.
The bank’s share price rose to a high of $219.75 in November 2021, but on Wednesday, it closed at $13.53. The bank reported a full-year loss of $949mn in 2022 compared to a profit of $76mn in 2021.
Silvergate’s Plight is a Reflection of the Crypto Industry’s Turmoil
Silvergate’s situation is just the latest sign of the turmoil in the cryptocurrency industry. The collapse of digital token prices has affected many companies, and the implosion of Sam Bankman-Fried’s FTX empire has only added to the industry’s woes.
This crisis of confidence has resulted in significant losses for many crypto companies, and Silvergate is not the only bank to be affected. As the industry grapples with these challenges, it remains to be seen how many other companies will be able to weather the storm.
Coinbase and Galaxy Digital’s Response Reflects Industry Caution
Coinbase and Galaxy Digital’s decision to stop accepting or initiating payments to Silvergate reflects a growing sense of caution in the crypto industry. With the market experiencing increased volatility and uncertainty, companies are looking to protect themselves against potential risks.
The fact that Silvergate is one of only a few US banks that are heavily involved in crypto is also a concern. If the bank is unable to survive, it could have a significant impact on the industry as a whole.
However, it’s important to note that Coinbase and Galaxy Digital have stated that they have very little exposure to Silvergate. This suggests that their decision to cut ties with the bank is more of a precautionary measure than a response to any specific threat.
Overall, the situation highlights the challenges that companies in the crypto industry are facing. While the potential rewards can be significant, there are also significant risks involved. Companies must be prepared to navigate the volatility and uncertainty of the market if they want to succeed in the long term.
Silvergate’s Capital Position Continues to Deteriorate
Silvergate’s recent announcement that it was evaluating its ability to survive as a going concern came after the bank revealed that its capital position had deteriorated significantly since its last earnings report. The bank has been hit hard by the recent collapse of digital token prices and the implosion of Sam Bankman-Fried’s FTX empire, which was a banking client.
The bank’s securities portfolio, which amounted to $5.7 billion at the end of 2022, has suffered fresh losses, and the bank has been selling off securities in an effort to meet withdrawals from crypto customers. This has resulted in further losses that will negatively impact the bank’s regulatory capital ratios and could result in the bank being less than well-capitalized.
The bank’s warning marks a precipitous fall for the once small community bank that supercharged its growth by pushing into cryptocurrencies. Many of the world’s top crypto miners, exchanges, and custodians used Silvergate to deposit and transfer billions of dollars. However, the bank’s share price has fallen dramatically, from a high of $219.75 in November 2021 to $13.53 at close on Wednesday.
The Crypto Industry is Facing Challenges
The challenges facing Silvergate are not unique. The crypto industry as a whole is facing increased volatility and uncertainty. The recent collapse in digital token prices has caused significant losses for investors and companies alike.
This volatility is a result of the inherent risk involved in investing in digital assets. Unlike traditional assets, digital assets are not backed by any physical commodity or asset. Instead, their value is based on market demand, which can be highly unpredictable.
This unpredictability has led many companies to be cautious in their approach to the crypto industry. While there is significant potential for growth and profit, there are also significant risks involved. Companies must be prepared to navigate this volatility if they want to succeed in the long term.
Conclusion
The challenges facing Silvergate highlight the risks and rewards of the crypto industry. While the potential rewards can be significant, companies must be prepared to navigate the volatility and uncertainty of the market if they want to succeed in the long term.
Coinbase and Galaxy Digital’s decision to stop accepting or initiating payments to Silvergate reflects a growing sense of caution in the industry. However, it’s important to note that their exposure to Silvergate is minimal. This suggests that their decision is more of a precautionary measure than a response to any specific threat.
Overall, the situation highlights the challenges that companies in the crypto industry are facing. To succeed in the long term, companies must be prepared to navigate the volatility and uncertainty of the market. They must also be prepared to take a cautious approach to risk management if they want to protect themselves against potential threats.