Silvergate Debunks Rumours Of A Liquidity Crisis Despite BlockFi, FTX Exposure ⋆ ZyCrypto

Silvergate bank has defended itself against allegations that it could be facing a liquidity crunch due to its close relationship with cash-beleaguered crypto exchange FTX and lending firm BlockFi.

Following the collapse of the two crypto firms, rumours that Silvergate could be facing a potential bank run after some experts exposed some glaring transactions with FTX have been pouring out.

What Really Happened?

On November 30, CFA-issued accountant Genevieve Roch-Decter brought to the crypto community’s attention a report by Silvergate that as of September 30, 2022, its “total deposits from all digital asset customers totalled $11.9 billion, of which FTX represented less than 10%.”

Although Silvergate had put out a statement saying that exposure to FTX was “minimal” and that it only had deposits with FTX and no loans, Genevieve noted that “less than 10%” of $11.9 billion was “still a LOT of money.” She also called out the bank for downplaying its relationship with BlockFi to which it had said it owed less than $20 million.

The accountant then raised concerns over the bank’s Bitcoin-collateralized loans. As ZyCrypto reported, Silvergate gave the famous $205 million Bitcoin-backed loan to Michael Saylor. “If Bitcoin’s price continues to slide, will the borrowers be able to make their payments?” she had asked, pointing to the $1.392 billion in outstanding loans reported by the bank at the end of Q3.

The pundit, whose worries reflect those of many other experts, also noted that in just three weeks since the FTX meltdown, Silvergate’s stock had fallen by over 50% raising further concerns about the bank’s future.

Silvergate Responds

With pressures mounting, Silvergate Capital Corporation, the bank’s parent company’s CEO Alan Lane came out on Tuesday to “set the record straight” about the bank’s financial health.

“There has also been plenty of speculation – and misinformation – being spread by short sellers and other opportunists trying to capitalize on market uncertainty,” Lane said in a letter to shareholders on Tuesday.

The CEO noted that they had conducted extensive due diligence on FTX and Alameda Research before and after conducting business with the firms. He also assured customers of their funds’ safety saying that “while this has been a turbulent time in the digital asset industry, our customers’ deposits are, and have always been, safely held.”

That said, Silvergate’s response seems not to have convinced many who have already seen FTX’s “domino effect” take down other companies. Later on Tuesday, three US Senators, Elizabeth Warren, Roger Marshall and John Kennedy, ordered the bank to release all records relating to FTX transfers.

“Your bank’s involvement in the transfer of FTX customer funds to Alameda reveals what appears to be an egregious failure of your bank’s responsibility to monitor for and report suspicious financial activity carried out by its clients,” the senators said in a letter. “The public is owed a full accounting of the financial activities that may have led to the loss of billions in customer assets, and any role that Silvergate may have played in these losses.”