With the persistent problems faced by the digital currency industry, San Diego’s crypto-friendly Silvergate Bank has revealed that its financial health has deteriorated, raising concerns about its capacity to continue operating.
In January and February, Silvergate disclosed that it had incurred a potential loss from the selling of debt securities that had supported its deposits related to cryptocurrencies. It is a company that specializes in offering deposit accounts, fund transfers, a real-time payments network, and other banking infrastructure to the cryptocurrency industry,
In light of these facts, Silvergate declared that it is assessing “the impact that these subsequent events have on its ability to stay in business for the twelve months after publishing its financial accounts. In view of the present commercial and regulatory issues it is facing, the company is in the process of reevaluating its companies and strategies.
As it tries to respond to queries from regulatory and other “inquiries and investigations,” Silvergate stated that it would likely not be able to submit its annual report to the SEC by the deadline of March 16.
Silvergate Drops: What Went Wrong?
Thursday’s premarket trading saw a 29% decline in Silvergate Capital Corp. shares after the lender, announced it was delaying its annual report and stated it was assessing its ability to continue as a going concern.
In response to the bankruptcy of cryptocurrency exchange FTX, investors rushed to withdraw deposits, causing Silvergate to report a $1 billion loss for the fourth quarter. The company’s problems highlight the brittleness of investor confidence in digital assets.
The filing is presented here. The issue is:
- At the end of September, Silvergate had $13.2 billion in deposits from cryptocurrency companies, the majority of which did not pay interest.
- After that, the value of cryptocurrency collapsed, and investors withdrew their funds from Silvergate and returned them to exchanges. Noninterest-bearing deposits fell from $12 billion to just $3.9 billion by the end of December.
- Silvergate needed to come up with nearly $8 billion in cash to cover these withdrawals.
The business announced that it could not submit its annual report by the new deadline of March 16. In a statement to the Securities and Exchange Commission, it also noted that it had sold extra debt securities to satisfy debts this past year and that further deficits mean the bank could be “worse than well funded”.
Given the present commercial and regulatory issues it faces, “The Company is engaged in re-evaluating its businesses and strategies.”
In a letter dated Feb. 6, Gibson stated, “We want to alert you to the risks that Silvergate’s customers have exploited the entity to participate in significant money laundering and that the administration of Silvergate has falsified its business operations potentially in breach of law and auditing standards.
The short sellers cite Silvergate’s December response to the Senate in which it stated that the bank’s anti-money-laundering process is examined each year by independent auditors and tasked Crowe with making a public statement outlining the findings of its audits.
The action follows a series of remarks from banking authorities advising financial institutions under their supervision about the risks of exposure to cryptocurrencies, particularly volatility.
Before the bank’s announcement this week, KBW analysts led by Michael Perito wrote in a note that “this is an exciting watch for the crypto industry as SI was the highest governed and also most transparent counter-party in the institutional trading market,” raising the possibility of future banking regulations for the cryptocurrency industry.