Crypto bank Silvergate collapses after warning over viability

Shares of crypto-focused bank Silvergate fell by more than half their value on Thursday after the lender said it was assessing its viability as a concern.

California-based Silvergate, one of the few US banks heavily focused on crypto, has been hit hard by the recent collapse in digital token prices and the implosion of bank client Sam Bankman-Fried’s FTX empire.

In a regulatory filing Wednesday, Silvergate said it could not file its annual report with the Securities and Exchange Commission on time. It said it will miss the March 16 deadline as its capital position has further weakened since last month, when it reported dismal fourth-quarter earnings.

Silvergate said it is “assessing the impact these subsequent events will have on its ability to continue as a going concern for the 12 months following the publication of its financial statements.”

US-listed crypto exchange Coinbase said on Thursday that it no longer accepts or initiates payments from Silvergate or Silvergate “due to recent developments and out of an abundance of caution”. Transfer banking has “minimized corporate exposure” and corporate customer transactions are facilitated through other banking partners.

Crypto financial services firm Galaxy Digital said on Thursday it had stopped accepting or initiating transfers to Silvergate.

“This step was taken out of an abundance of caution to ensure customer and company assets are safe,” the company said.

Shares of Silvergate ended down 58 percent in New York on Thursday.

Following such sales in January and February, the bank revealed that its capital ratios would be hit by fresh losses on its bonds portfolio, which stood at $5.7bn at the end of 2022. The bank has been selling securities in an attempt to win back from crypto clients, describing what it described as a “crisis of confidence” in the sector.

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“These additional losses will negatively impact regulatory capital ratios . . . and the company and the bank may be less than well capitalized,” Silvergate said.

The warning marks the downfall of a once small community bank that overstated its growth by pushing into cryptocurrencies. Many of the world’s top crypto miners, exchanges and custodians have used Silvergate to deposit and transfer billions of dollars.

The bank’s share price hit a November 2021 high of $219.75, but closed at $13.53 on Wednesday.

Silvergate posted a full-year loss of $949mn in 2022 compared to a profit of $76mn in 2021.

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