- Cryptobank Silvergate won’t make the March 16 deadline for its annual report as it mulls over its ability to continue operations.
- Silvergate has been in a downward spiral since FTX collapsed.
- Servicing FTX and Alameda has led to a DOJ investigation.
FTX’s negative impact on the crypto space continues to resonate as businesses across the industry feel general market pressure and the sting of association with Sam Bankman-Fried’s bankrupt empire four months later.
Silvergate Evaluating Ability to Survive
On Wednesday, March 1, California-based crypto bank Silvergate disclosed that it would miss the deadline for filing its annual report with the SEC. The bank highlighted further weakening in its capital position following dismal fourth-quarter earnings. The news sent its stock price down 31%.
Ahead of the delayed annual report, Silvergate said it would be “evaluating the impact that these subsequent events have on its ability to continue as a going concern for the twelve months following the issuance of its financial statements.”
The subsequent events in the statement were pinpointed as substantial market volatility experienced at last year’s end, high-profile bankruptcies rattling investor confidence in crypto, and stricter regulatory scrutiny on banks working with crypto.
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The incident is not Silvergate’s first run-in with high-profile bankruptcies in the sector. The firm had ties to collapsed cryptocurrency exchange FTX, leading to a DOJ investigation into its dealings with the failed exchange and sister company Alameda.
Looking at the timeline of Silvergate’s struggles, the FTX failure appears to have been a major catalyst for its potential impending collapse.
A Fall From Grace
Silvergate attracted business from Alameda in 2018, when the trading firm opened an account with the crypto bank a year before FTX was even launched. However, when FTX collapsed in November 2022, Silvergate experienced a massive bank run, as more than $8 billion was withdrawn from the bank in Q4 alone.
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To stay afloat, Silvergate fired 40% of its staff on January 5, 2023, and took out several loans, including a $4.3 billion loan from the Federal Home Loan Bank.
Silvergate went into crisis mode, holding off plans to launch a digital currency and writing off $196 million related to its acquisition of the technology and assets of Diem.
The DOJ investigation followed on February 3, shaking investor confidence and pulling its stock down further. It dropped by 28% 24 hours after the story broke.
Another Blow to Crypto Confidence
The struggles of Silvergate, and potential demise, are slated to impact a crypto investment sector that is already precariously positioned. Silvergate had long been considered an example of success for traditional financial services adopting crypto and servicing clients with access to digital assets.
Silvergate is also an important player for both retail investors and crypto businesses—including Blackrock—as Business Development and Marketing Executive Adam Cochran explained on Twitter:
On the Flipside
- Crypto exchange giant Binance, under investigation for its relationship with the U.S. arm of Binance, reportedly moved around $400 million in funds from Binance US’s Silvergate Bank account in Q1 of 2021, Reuters reported on February 16.
Why you Should Care
The pressure on Silvergate is indicative of the current crypto landscape. Poor market conditions, lack of investor confidence, high-profile bankruptcies, and higher regulatory scrutiny have made it difficult to operate as a crypto business.
