Silvergate: crypto bank near bankruptcy

Bad news for the crypto bank Silvergate

After collapsing on the stock market a few days ago, and after being dumped by virtually all the major exchanges, there is a new downfall for the bank.

In fact, Judge Michael Kaplan, who is handling BlockFi’s bankruptcy proceedings, has ordered Silvergate Bank to return $9.8 million that the company had on deposit.

The text of the order reads:

“Silvergate shall immediately release $9,850,000 from the Silvergate Reserve Account to an account designated by the Debtors.”

This news, released Friday with the markets closed, affected Silvergate’s stock on the stock market yesterday, which lost 6 percent.

Silvergate, the crypto bank’s recent stock market performance

In early March, or less than a week ago, Silvergate Capital’s stock price on the stock market was above $13.

On the day it closed its relationship with Coinbase, Tuesday 2 March, it suddenly collapsed below $8, and then even plummeted below $5 the following day.

Practically in two days it lost more than half its value, with a collapse of more than 61% that is very rare in international financial markets in such a short time.

Truth be told, on 3 March 3 it had then recovered above $6, closing the week at $5.8.

Yesterday, though, it opened at $5.4, and after some volatility, it closed the session at the same level.

It is worth noting that in mid-February it had even broken above $22, so in three weeks it has lost 77% of its value.

Pushing further back, the situation gets even worse, because in August last year it was well above $100, and in November 2021, at the height of the crypto bubble, it had exceeded even $200.

Excluding the exaggerated values touched during the last big bull run, the reference values could be the range between $50 and $100 within which Silvergate’s share price fluctuated last year after the implosion of the Terra/Luna ecosystem, and the bankruptcy of Celsius and BlockFi.

Taking the $82 at the end of May 2022 as a comparison, the cumulative loss since then is 94%, which is in line with that of altcoins that are performing worse.

For example, compared to the end of May 2022, the price of Bitcoin is losing 30%, while Ethereum lost only 21%.

Cardano‘s ADA is losing 46%, and Solana’s SOL is losing 55%.

To find similar losses it is necessary to compare the performance of SIlvergate’s share price over the past year with that of cryptocurrencies such as Anchor Protocol’s ANC, ATLAS, or Celsius’s CEL.

The risk of bankruptcy

It is not surprising, therefore, that in such a context speculation began to circulate about a possible bankruptcy also for Silvergate.

Moreover, on Friday a banner appeared on the home page of Silvergate’s website announcing that the company had made the decision to discontinue the Silvergate Exchange Network.

Moody’s Investors Service later stated that “the core franchise of Silvergate now is gone.”

At this point, the question on many people’s minds is: Are there conditions for the crypto bank to continue operating? And, if not, what will happen to it at this point?

In fact, by having to immediately return $9.8 million to BlockFi’s bankruptcy trustee, there is a risk that Silvergate will not have sufficient liquidity, and will therefore end up not being able to honor its debts in the short term.

For these reasons, the hypothesis of bankruptcy is far from far-fetched. Indeed, to be frank, the 77% loss of value on the stock market in the last three weeks, and -94% since the end of May last year, suggests that the markets have already been assuming for days that the bank’s bankruptcy is likely, if not imminent.

Not least because there are those who speculate that behind the closure of the Silvergate Exchange Network may be the hand of the SEC, which seems to be definitely engaged in some sort of crackdown on crypto.

The problems for Silvergate began as a result of the FTX bankruptcy, and since the latter is still far from a resolution, at this time it does not seem possible that Silvergate will be able to resolve them anytime soon.

Silvergate’s customers have reportedly withdrawn $8.1 billion in deposits, and the bank has reportedly applied for a $3.6 billion loan from the Federal Home Loan Banks System in order to meet this wave of withdrawal requests. Despite being able to meet them all, a $3.6 billion debt at this time seems difficult to sustain.