On Thursday, the stock price of a US bank with a focus on cryptocurrency experienced a significant drop, and the bank is now evaluating its capacity to continue operating
After new information surfaced regarding its exposure to the collapse of cryptocurrency exchange FTX, the share price of Silvergate, a US bank that focuses on cryptocurrencies, dropped by nearly 50% in early Thursday trading, sparking concerns about its viability. On Wednesday, the bank postponed the release of its yearly report and disclosed a new asset sale to pay off debts, while acknowledging in a filing with the US financial markets regulator, the SEC, that it was evaluating “its ability to continue as a going concern.” Additionally, the filing suggested that Silvergate could face more regulatory scrutiny in the future, which may harm its profitability.
The bank cautioned that its operations might be negatively impacted by “several litigation cases (such as private litigation) and regulatory and other inquiries and investigations,” which could come from banking regulators, US Department of Justice, and congressional committees. As a result of this warning, significant partners, including crypto exchange Coinbase, quickly abandoned Silvergate as a precautionary measure. Coinbase, which relied on Silvergate to process cash transactions for its customers, stated that it would no longer accept or initiate payments to or from Silvergate “in light of recent developments and out of an abundance of caution.” Additionally, the company tweeted that it had “de minimis corporate exposure to Silvergate.”
Following Coinbase’s statement, Silvergate’s shares plummeted by approximately 50% to $7 during early trading on the New York stock exchange on Thursday. However, they later recovered somewhat to reach $7.60, having closed at $13.53 the day before. During the height of the cryptocurrency surge in late 2021, Silvergate’s stock price soared to a record high of $219.75.
After focusing exclusively on catering to the cryptocurrency industry since 2013, the bank, which has been in operation for over 30 years, experienced a setback with the collapse of FTX. As a result, it declared its intention to sell assets worth $5 billion to raise cash in early 2023, incurring a loss of nearly 20% in the process. The bank took this action to address its “persistent low deposit levels” and ensure that it maintained a “highly liquid balance sheet.”
The cryptocurrency exchanges had withdrawn currency from their accounts at Silvergate due to users withdrawing funds from the exchanges, leaving Silvergate in a precarious state of illiquidity. Silvergate attributed these withdrawals to a “crisis of confidence” that had spread throughout the entire cryptocurrency ecosystem.
Despite Silvergate’s difficulties, other segments of the cryptocurrency industry are flourishing. Bitcoin and Ethereum have both experienced a surge of approximately 40% since the beginning of the year. Additionally, despite being affected by its association with the bank, Coinbase has seen a 76% increase in value so far this year.
Akash Pasricha, the author of an industry newsletter called Crypto Global, reported that despite the recent rally in cryptocurrency, there is not a sudden surge of optimism among crypto founders and investors. Rather, they are adopting a more cautious approach for once.
