The difficulties continue for Silvergate after the bank announced the suspension of its cryptocurrency payments network. In addition, Circle moved the portion of funds used for USDC collateralization that was stored at Silvergate to other banking institutions.
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Is Silvergate close to bankruptcy?
As the news surrounding the Silvergate bank grows darker day by day, the specter of a potential bankruptcy is growing. On Friday night, the company actually added a banner to the top of its website’s homepage, specifying the shutdown of its cryptocurrency payment system :
“Effective today, Silvergate Bank has made the risk-based decision to terminate the Silvergate Exchange Network (SEN). All other deposit-related services remain operational. »
This system allowed crypto payments around the clock and was notably used by MicroStrategy to make a collateralized loan in Bitcoin (BTC) from the bank. However, the company clarifies that this collateralization is safe and not stored via Silvergate services, thus taking the lead on potential rumors that could emerge:
We have a loan from Silvergate not due until Q1 ’25. There are mkt concerns re SI’s end. 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 that the publication of its financial statement was going to take, it is therefore an additional element playing against Silvergate, which had suspended dividends on its Series A shares at the end of Januaryso that “preserve capital“.
As a reminder, Silvergate had a minimal exposure of $20 million to BlockFi, a cryptocurrency platform now under cover of Chapter 11 of the United States bankruptcy law. Concerning FTX, the bank announced that this exposure concerned “less than 10 %of its $11.9 billion in assets under management as of September 30, 2022.
However, these same deposits only amounted to $3.8 billion as of December 31. Since funds locked at FTX are always locked, a quick calculation could make us estimate this exposure up to 31.3%provided that total assets under management have not yet fallen more than they already have.
On the other hand, the bank also indicated that its deposits with Genesis, another bankrupt player, amounted to $2.5 million.
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Circle ends relationship with Silvergate
Circle, the USDC issuing company, had advised on Thursday that it was beginning to take action on Silvergate. On the night of Friday to Saturday, the company formalized the end of its relations with the bank :
“Due to continued uncertainty at Silvergate Bank, Circle today transferred the small percentage of USDC Reserve Deposits held at Silvergate to our other banking partners. »
All of these elements therefore bode ill for the future of Silvergate, even if at the time of writing these lines, nothing is yet recorded.
Moreover, although this information is in no way correlated with current events, it is interesting to note that Ken Griffin, the CEO of Citadel openly anti-crypto in the past, revealed a fortnight ago to have a 5.5% stake in Silvergate.
👉 Also in the news – Silvergate in trouble: Coinbase suspends its partnership with the crypto-friendly bank
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Sources: Silvergate, Circle
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I timidly discovered the world of blockchain at the end of 2018 during my quest for financial freedom. Initially invested moderately, it was only two years later that I took the gamble of betting everything on the movement that was taking shape then. I then dedicate 2021 to training myself better to acquire more knowledge and seriousness. As I often like to say: I still have a billion things to learn. And what I do know, I want to share with you.
Vincent Mayor
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