The Silvergate bank closes crypto payments network

• Silvergate Capital announces it has halted its crypto payment services. 

• A CIO of a crypto asset manager believes that the damage is already likely done on the broader market.

Distressed Silvergate Capital Corporation which was once among the most preferred destinations for crypto businesses has faced its worst challenges in the past few months. According to reports, the bank has made a risk-based decision to suspend its crypto payment services called the Silvergate Exchange Network.

Effective immediately Silvergate Bank has made a risk-based decision to discontinue the Silvergate Exchange Network (SEN). All other deposit-related services remain operational.

Interestingly, this was the most utilized product of the bank as it enabled investors to facilitate 24/7 transfers to crypto exchanges. This product was heavily patronized for its fast transaction speed compared to traditional banking wire. 

The good and the bad of this move

According to J. Austin Campbell, an adjunct professor at Columbia Business School, this is a bad sign. In his statement, none of the money can leave as the company had to wait until after the close of business to announce this. Campbell, however, thinks that many crypto firms cutting relationships with Silvergate and moving away from them is good news. This makes the move less catastrophic. 

KBW analyst Michael Perito also commented on this:

This is an interesting event for the crypto industry, as SI was the highest regulated and most transparent counter-party in the institutional trading market.

The company’s woes continue after recording $886 million in losses in the most recent quarter from selling underwater securities. This led to a 68 percent fall in its crypto-related deposits. According to data, it fell from $11.9 billion to $3.8 billion quarter on quarter. Prior to this, the bank had recorded a loss of $1 billion in Q4 2022.

Also, the US bankruptcy court ordered Silvergate to release $9.9 million to crypto lender BlockFi. The likes of Coinbase Global Inc COIN Galaxy Digital Holdings Ltd, Paxos Trust, Bitstamp, and Gemini have already suspended their relationship with the bank. 

Recently, it was disclosed to have sold additional debt securities in a bid to repay its financial obligations. Shortly after announcing the operational issues, its stock fell more than 30 percent in after-hours trading. Overall, the stock was down by almost 90 percent year-over-year. 

Silvergate 2023 challenges continue, but is there any danger to the Bitcoin and crypto market?

In 2023 alone, Silvergate abandoned several projects and laid off about 40 percent of its workers. That was not enough as the bank was also suspected by US Senators Elizabeth Warren, Roger Marshall, and John Kennedy of having some inside information about the collapsed FTX empire. According to the politicians, both Congress and the public deserve to know all the inside information to understand how Silvergate contributed to FTX’s failure. This is largely due to the information that Silvergate engaged “the Federal Home Loan Bank as its lender of last resort in 2022.”

The million-dollar question on the lips of several crypto investors has to do with the impact of this announcement on the crypto market. According to Matthew Dibb, the Chief Investment Officer at cryptocurrency asset manager Astronaut Capital, there is no cause for alarm as this event is probably priced in the BTC price already. 

From what we gather, most crypto companies have had to already find banking elsewhere, hence we believe the damage is likely already done in terms of implications to the wider crypto market.

Crypto News Flash does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. Readers should do their own research before taking any actions related to cryptocurrencies. Crypto News Flash is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned.