Last week, Silvergate (SI), a Californian bank that deals mostly with cryptocurrency transactions, lost 60% in value. A google search on the firm reveals it suspended its crypto payments network. The Exchange Network closure will release $9.9 million to BlockFi.
Silvergate’s turning point happened on March 2, 2023. Coinbase Global (COIN) said that it would no longer accept or start payments from Silvergate. Coinbase said that this is in light of recent development and for caution. Days before that, Silvergate announced that it would not meet its March 16 deadline for filing an annual report.
Silvergate also revealed fresh new losses from other-than-temporary impairments.
Customer fund withdrawals are never good for any bank. Silvergate is likely facing a panicked rush of customers taking out their assets. The firm did not have adequate know-your-client protection in place. This resulted in potentially risky cryptocurrency Ponzi schemes hurting its business.
Silvergate is undercollateralized. Chances are high that it has a very poor tier-1 ratio in the single digits. It delayed its filing to avoid reporting those figures. Investors who paid over $90 a share are unlikely to get their money back. Those who bought shares at $20, betting on a rebound, will also see paper losses turn to real losses.
SI stock closed recently at $5.77. Chances are high that the stock will fall from there.
