Crypto firms distance themselves from Silvergate amid bankruptcy rumors
Speculation in the community has swirled around the FDIC placing Silvergate Bank into receivership. A potential buyer of the industry-friendly digital-asset bank could be Wells Fargo.
UPDATE: Rumors that Silvergate $SI will be seized (receivership) by the FDIC and Wells Fargo $WFC is set to take over customer accounts.
Source: “The amount of political pressure (WH/Elizabeth Warren) on regulatory agencies to cripple crypto is unprecedented right now.”
— Andrew (@AP_Abacus) March 2, 2023
One community member, citing a source, noted that the scale of pressure on the industry from US Senator Elizabeth Warren is unprecedented.
On March 2, the shares of the bank’s parent company Silvergate Capital Corporation fell 57.7%. The market reacted to information about the delay in publishing the annual report for the SEC. The company said it needed “additional time” to complete the audit.
The company also cited “a number of circumstances” that affected its ability to file the documentation on time. In particular, the sale of investment securities “beyond what was previously anticipated and disclosed in the earnings report”.
Another factor were new bond issuances in January and February 2023. Silvergate plans to reflect losses on them.
Accounting for the writedowns on securities could adversely affect the capital adequacy of both the bank and Silvergate Capital Corporation, the company warned.
In light of the speculation, many industry participants have said that the situation around the institution has little or no impact on their business.
Specifically, Tether, Galaxy Digital and Paxos said as much. The latter halted all transfers SEN to accounts at Silvergate. Similarly, transfers to Coinbase and CBOE were halted until the appropriate notice.
Bakkt noted the suspension of several services related to the institution. The company continues to operate normally.
We are closely monitoring the situation with Silvergate and are in the process of discontinuing usage of certain services. All Bakkt services remain operational.
— Bakkt (@Bakkt) March 2, 2023
Circle also weighed in.
1/ We maintain relationships with several banking partners. We are sensitive to the concerns around Silvergate and are in the process of unwinding certain services with them and notifying customers. Otherwise, all Circle services, including USDC are operating as normal.
— Circle (@circle) March 2, 2023
“The company works with various partners to manage reserves USDC and settlements, ensuring robust liquidity management,” its representatives said.
MicroStrategy said it has a loan from the bank due in Q1 2025. The company’s obligations would not change in case of bankruptcy proceedings. The software maker noted that it does not hold Bitcoins in the bank’s accounts and has no other financial relationships with it.
We have a loan from Silvergate not due until Q1 ‘25. There are mkt concerns re SI’s fin. condition. For anyone wondering, the loan wouldn’t accelerate b/c of SI insolvency or bankruptcy. Our BTC collateral isn’t custodied w/ SI & we have no other financial relationship w/ SI.
— MicroStrategy (@MicroStrategy) March 2, 2023
Some concerns were raised regarding Gemini. As of the end of January, the exchange held part of its $267 million GUSD reserves on Silvergate accounts.
Representatives for the platform said that to date they had withdrawn both customer funds and backing for the stablecoins from the bank. Gemini has halted processing of payments through Silvergate.
1/ We are actively monitoring the situation with Silvergate Bank. We currently have zero customer funds and zero GUSD funds held at Silvergate.
— Gemini (@Gemini) March 2, 2023
“We hold all U.S. dollars on behalf of clients in FDIC-insured banks or money-market funds oriented toward securities issued or guaranteed by the U.S. authorities,” the company said.
LedgerX, a crypto-derivatives platform, also urged its clients to refrain from using Silvergate’s services.
In the fourth quarter of 2022, the net loss of the digital-asset-focused institution amounted to $1.05 billion. The deterioration in the operating environment was caused by the collapse of FTX, which had been a client of the bank.
The company also faced funding-access issues due to efforts to reduce dependence on Federal Home Loan Banks.
In the latest reporting period the bank recorded a deposit outflow and took steps to maintain liquidity. The company initially turned to wholesale financing, and then to selling debt securities.
Moody’s downgraded Silvergate Bank’s rating from Ba3 to B2, citing a deterioration in the bank’s baseline credit assessment.
In November 2022 the company said that less than 10% of its deposits were placed on the trading platform. The bank also disclosed the volume of customer deposits on BlockFi’s accounts during bankruptcy; they did not exceed $20 million.
Earlier, Senators Elizabeth Warren, John Kennedy and Roger Marshall asked Silvergate CEO Alan Lane to provide detailed information about the bank’s ties with FTX.
At the end of 2022 the institution faced a class-action lawsuit over its alleged role in transferring users’ FTX deposits to Alameda Research accounts.
In January 2023, U.S. federal prosecutors seized more than $6 million from the former CEO of the bankrupt exchange Sam Bankman-Fried, held on three Silvergate accounts opened in the name of the Bahamian subsidiary of the exchange’s FTX Digital Markets.
In February, Bloomberg reported that the U.S. Department of Justice’s fraud unit is investigating the company’s deals with FTX and Alameda Research. The company is listed among the creditors of the bankrupt Bitcoin exchange.
As reported on March 3, Bitcoin tested the $22,000 level amid news around Silvergate.
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