By Darren Parkin
Cryptocurrency markets took a sudden dip overnight as it was revealed industry leviathans Coinbase and Galaxy Digital had ditched Silvergate Capital as their banking partner over concerns about its future.
Eyebrows were raised at the lender’s most recent filings which appeared to question its ability to remain a viable business.
The collapse of Sam Bankman-Fried’s FTX exchange triggered concern among Silvergate’s investors – a ripple effect now showing up in the deterioration of the California-based lender’s capital position.
Silvergate shares halved in value overnight as bosses revealed they were working on keeping the crypto-reliant business afloat, saying they were “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”.
FTX had been a major client of Silvergate and, while Coinbase and Galaxy Digital claim they had minimal exposure to Silvergate, they both last night said they would no longer accept or initiate payments to or from the crypto-focused bank.
Galaxy Digital was keen to stress it had “no material exposure” to Silvergate, adding the “action was taken out of an abundance of caution to ensure client and firm assets are secure”.
The move triggered a deeply negative response across all crypto markets with Bitcoin alone plunging dramatically from $23,420 to $21,988 in the space of an hour. Every major cryptocurrency followed suit, and most altcoins displayed a similar pattern. Bitcoin settled at $22,370 where it remains this morning.
Silvergate’s filings detailed that capital ratios would be hit by securities portfolio losses of $5.7bn at 2022 year end. The bank sold off further securities in Q1 2023 in an attempt to cover crypto withdrawals from customers.
“These additional losses will negatively impact the regulatory capital ratios, and could result in the company and the bank being less than well-capitalised,” the company explained.
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