Silvergate Bank’s troubles deepen as it announces that its annual report on its financial health will be delayed. Coinbase and Circle, meanwhile, are playing it safe, taking steps to address the situation.
Silvergate Bank is in trouble
Silvergate, the bank known for its assumed activities in the cryptocurrency ecosystem, is currently experiencing difficulties that seem to be gaining momentum with each passing week.
While the rumours were growing and the company was trying to be reassuring, the layoff of 40% of the workforce was announced, as well as a $1 billion loss recorded in the last quarter of 2022.
In recent days, the difficulties seem to be accelerating, fuelled by the fact that the bank revealed that it would not be able to provide its Form 10-K to the SEC by the required deadline:
“Silvergate Capital Corporation has determined that it is unable to file with the Securities and Exchange Commission (SEC) its annual report on Form 10-K for the year ended December 31, 2022, within the required timeframe…. The Company is working diligently to file its Form 10-K as soon as possible, but does not expect to be in a position to [file it] by the March 16, 2023 extension date. “
A Form 10-K is an annual report on the financial health of a company.
The impact of this announcement was greatly felt in Silvergate’s share price, as evidenced by the impressive bearish gap in the chart below:
Silvergate share price
While the stock has fallen more than 76% in just a fortnight, it has now lost more than 97% since its last all-time high (ATH) of $239.26 in November 2021.
Coinbase ends collaboration with Silvergate
In light of the current situation, Coinbase has taken the lead in informing that it will no longer accept and initiate payments to Silvergate as a security measure for its customers:
At Coinbase all client funds continue to be safe, accessible and available.
In light of recent developments & out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate.
– Coinbase (@coinbase) March 2, 2023
The nature of its relationship was partly about the safekeeping of Coinbase’s customers’ fiat deposits, which is refocusing on its other partnerships with banks insured by the Federal Deposit Insurance Corporation (FDIC).
Such collaborations are necessary because exchanges are not banks, and therefore cannot hold fiat currencies on behalf of others.
In view of the scandal produced by FTX and other players before it, it is indeed wise to be cautious.
This is an attitude also adopted by Circle. The company has announced that it is beginning to terminate certain relationships with Silvergate, and is reassuring about the health of the USDC:
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
It is true that Silvergate is one of the players collateralising Circle’s stablecoins. However, it is worth taking a step back, as the company also uses other banks, as shown in its latest audit report at the bottom of the page:
“Cash is held at regulated financial institutions in the United States: Bank of New York Mellon, Citizens Trust Bank, Customers Bank, New York Community Bank, a division of Flagstar Bank, N.A., Signature Bank, Silicon Valley Bank, Silvergate Bank.”
