The troubles continue for Silvergate after the bank announced the suspension of its cryptocurrency payments network. In addition, Circle has moved the portion of funds used to collateralize USDC that was stored at Silvergate to other banking institutions.
Silvergate close to bankruptcy
As the news surrounding Silvergate Bank gets darker by the day, the spectre of a potential bankruptcy is growing. On Friday night, the company actually added a banner at the top of its website homepage, stating that its cryptocurrency payments system was being shut down:
“Effective immediately, Silvergate Bank has made a risk-based decision to discontinue the Silvergate Exchange Network (SEN). All other deposit services remain operational. “
This system allowed 24-hour crypto payments and was notably used by MicroStrategy to make a collateralised Bitcoin (BTC) loan from the bank. However, the company clarifies that this collateralisation is secure and not stored via Silvergate’s services, thus taking the lead on potential rumours that may emerge:
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
After the announcement of the delay in the publication of its financial statement, this is yet another element against Silvergate, which had suspended dividends on its Series A shares at the end of January, in order to “preserve capital”.
As a reminder, Silvergate had a small exposure of $20 million to BlockFi, a cryptocurrency platform now under Chapter 11 of the US bankruptcy law. With respect to FTX, the bank announced that this exposure was “less than 10%” of its $11.9 billion in assets under management as of 30 September 2022.
However, these same deposits amounted to only $3.8 billion as of 31 December last year. Given that the funds tied up at FTX are still tied up, a quick calculation could put this exposure as high as 31.3%, provided that total assets under management have not fallen any further than they already have.
On the other hand, the bank also reported that its deposits at Genesis, another failed player, amounted to $2.5m.
Circle ends relationship with Silvergate
Circle, the issuer of the USDC, said on Thursday that it was beginning to take action against Silvergate. On Friday night, the company made it official that it was ending its relationship with the bank:
“Due to the continued uncertainty at Silvergate Bank, Circle today transferred the small percentage of USDC’s reserve deposits held at Silvergate to our other banking partners. “
All of this bodes ill for Silvergate’s future, although at the time of writing, nothing has been decided.
Furthermore, although this information is in no way correlated with current events, it is interesting to note that Ken Griffin, Citadel’s CEO who has been openly anti-crypto in the past, revealed a fortnight ago that he has a 5.5% stake in Silvergate.
