Silvergate: Beware banks that bet big on crypto

Silvergate, the small time US lender that bet big on crypto, has announced huge losses and may have to wind down according to its annual report, and serves as a timely reminder to those banks that are betting big on crypto.

Silvergate: Beware banks that bet big on crypto

Back in early January 2022 Silvergate rose to fame when it purchased the dying embers of the Diem cryptocurrency which appeared to have been doomed from conception.

At the time Silvergate was rumoured to have paid $200 million for the assets.

Fast forward to this tumultuous week and shares of Silvergate shed more than half their value after the lender said it was evaluating its ability to survive as a going concern.

Silvergate, one of just a few US banks to focus heavily on crypto, has been hit hard by the recent collapse of digital token prices and the implosion of Sam Bankman-Fried’s FTX empire, which was a banking client.

In a regulatory filings, Silvergate said it would not be able to file its annual report with the Securities and Exchange Commission on time.

It said it would miss the March 16 deadline because of a further weakening in its capital position since last month, when it reported dismal Q4 earnings.

Silvergate said it was “evaluating the impact that these subsequent events have on its ability to continue as a going concern for the 12 months following the issuance of its financial statements”. #

To make things worse, Coinbase announced it was no longer accepting or initiating payments to or from Silvergate “in light of recent developments and out of an abundance of caution”.

Galaxy Digital, a crypto financial services company, also said that it had stopped accepting or initiating transfers to Silvergate, adding it had “no material exposure” to the bank.

“This action was taken out of an abundance of caution to ensure client and firm assets are secure,” the company said.

The bank disclosed that its capital ratios would suffer from fresh losses on its securities portfolio, which amounted to $5.7 billion at the end of 2022, following further such sales in January and February.

The bank has been selling off securities in an effort to meet withdrawals from crypto customers amid what it has described as a “crisis of confidence” in the sector.

The bank’s share price was at a high of $219.75 in November 2021 but on this week closed at $13.53 after it reported a full-year loss of $949 million in 2022 compared with a profit of $76 million in 2021.

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