Silvergate Capital (ticker: SI) stock plunged to a record low on Thursday after the fintech firm disclosed doubts about its ability to continue doing business.[0] The stock declined 2% in premarket trading on Friday.[1]
In a Wednesday filing with the Securities and Exchange Commission (SEC), Silvergate said it requested additional time to evaluate “internal controls over financial reporting” and to complete its audit procedures.[2] The firm noted it expects to record further losses as it sold additional investment securities “beyond what was previously anticipated and disclosed” in January and February 2023.[3]
The company attributed the losses to a “crisis of confidence across the ecosystem” and noted they will negatively impact the firm’s and its subsidiary, Silvergate Bank’s, regulatory capital ratios, potentially resulting in them being “less than well-capitalized.”[3]
The news sparked an exodus of crypto exchanges, stablecoin issuers, and trading desks that use Silvergate to facilitate payments.[4] Coinbase, Galaxy Digital Holdings, and Paxos Trust all announced they will no longer be accepting or initiating payments through Silvergate.[5] Stablecoin issuer Tether also confirmed it is not exposed to Silvergate.[4]
JPMorgan downgraded the stock from “neutral” to “underweight” after the announcement and Bitcoin held steady above $23,400 on Thursday, fluctuating between $23,210 and $23,791.[5] In the morning, Ethereum was trading at an all-time high of $1,677, and by the afternoon, it had dropped to around $1,640[6]
The troubles of Silvergate are a demonstration of the virus effect originating from the downfall of FTX cryptocurrency trading platform in November.[7] Last year, after FTX, a major customer, declared bankruptcy, the bank experienced a run on deposits.[7] The Department of Justice also recently opened an investigation into the bank’s dealings with FTX and its sister company Alameda Research.[8] Silvergate is now evaluating the impact the growing problems will have on its “ability to continue as a going concern for 12 months following the issuance of its financial statements.[3]
0. “The crypto winter is coming for Silvergate Capital” Quartz, 2 Mar. 2023, https://qz.com/the-crypto-winter-is-coming-for-silvergate-capital-1850178407
1. “Silvergate Stock Slows Slide Despite Coinbase, Circle, More Ditching Crypto Bank” Barron’s, 3 Mar. 2023, https://www.barrons.com/articles/silvergate-stock-crypto-coinbase-circle-d233d5ae
2. “Will crypto-friendly bank Silvergate file for bankruptcy this weekend?” Protos, 3 Mar. 2023, https://protos.com/will-crypto-friendly-bank-silvergate-file-for-bankruptcy-this-weekend/
3. “Silvergate Capital Stock: Why It’s Time To Get Out (NYSE:SI)” Seeking Alpha, 2 Mar. 2023, https://seekingalpha.com/article/4583853-silvergate-capital-stock-time-get-out
4. “Coinbase, other big crypto names rush to ditch troubled bank Silvergate” Markets Insider, 3 Mar. 2023, https://markets.businessinsider.com/news/stocks/crypto-silvergate-coinbase-gemini-circle-ditch-lender-payments-financial-troubles-2023-3
5. “Crypto Bank Silvergate Shares Crash Amid Investor Walkout, JPMorgan Downgrade” Bitcoinist, 2 Mar. 2023, https://bitcoinist.com/silvergate-shares-crash/
6. “Recovering Crypto Market Takes Hit as Silvergate Bank Future Questioned” Entrepreneur, 3 Mar. 2023, https://www.entrepreneur.com/business-news/crypto-market-takes-hit-as-silvergate-bank-future-questioned/446850
7. “Bitcoin Sinks to Two-Week Low as Silvergate Fallout Hurts Crypto” Yahoo News, 3 Mar. 2023, https://news.yahoo.com/bitcoin-sinks-two-week-low-024503929.html
8. “Silvergate Capital shares drop 57% after the crypto bank delays its annual report” CNBC, 2 Mar. 2023, https://www.cnbc.com/2023/03/02/silvergate-capital-shares-crater-after-the-crypto-bank-delays-annual-report.html