The crypto bank, Silvergate Capital Corporation, is fighting for its life.
This week, the company issued a warning expressing its uncertainty as to whether it will be able to continue doing business.
It has made the decision to close down its Silvergate Exchange Network (SEN), a platform utilized by institutional investors to transfer funds to cryptocurrency exchanges continuously. It changed the game for cryptocurrency investors by enabling 24/7 capital transfers between investors and crypto exchanges.
SEN Is Closed
Investors purchase cryptocurrencies using fiat money, such as the dollar, and later exchange their tokens for more dollars or other fiat money. SEN permitted instantaneous transactions as opposed to conventional bank wires, which typically take days. Crypto users of Silvergate used SEN to do transactions at any time, including on the weekends and after hours. So, the majority of the key people in the crypto industry had been drawn to the bank by this initial offer.
But, this service is no longer offered.
Silvergate Bank has made the risk-based decision to immediately cease running the Silvergate Exchange Network (SEN). According to a statement on March 3 that Silvergate placed on their website, “all other deposit-related services are still available.
Just two days earlier, Silvergate had issued a warning, noting that it was evaluating its ability to continue operating as a “going concern,” that it had sold debt securities at a loss in January and February, and that it anticipated further losses related to the other-than-temporary impairment on the securities portfolio.
The company and the bank “may end up being less than well-capitalized” as a result of these new losses, Silvergate said.
The most alarming statement made by Silvergate was that its future might be in jeopardy.
The firm issued a warning and stated, The Company is examining the impact that these subsequent developments have on its ability to continue as a going concern for the twelve months following the publishing of its financial statements.
In view of the present commercial and regulatory issues it is facing, the company is in the process of reevaluating its companies and strategies.
Significant Governance Deficiencies
Most crypto companies cut their ties with the bank as a result of these warnings.
Coinbase (COIN), Circle, Paxos, Crypto.com, Bitstamp, Cboe Digital Markets, Galaxy Digital, and Gemini, announced on March 2 that they will halt ACH transfers and other commercial dealings with the bank. The first company to sever connections with Silvergate was a provider of crypto derivatives named LedgerX.
In essence, none of these businesses take payments through Silvergate, and they don’t utilize the bank any longer.
On March 2, Silvergate’s stock fell by about 58%, although it was able to recover the next day. It’s uncertain if the sell-off will start up again in the upcoming trading sessions.
In response to the warnings, Silvergate Capital Corporation (Silvergate Capital) and its bank subsidiary Silvergate Bank had their ratings downgraded by the ratings agency Moody’s Investors Service.
According to a press announcement from Moody’s, Silvergate Capital’s long-term issuer rating was decreased from B3 to Ca.
The inability to submit its annual report on time, the asset and liability mismatch that caused higher-than-anticipated realized losses when selling investment securities, the possibility of no longer being considered well-capitalized, and rising legal and regulatory risks, according to the ratings agency, highlight serious governance deficiencies.
In addition, it stated that the institution’s “exposure to adverse events” had increased due to the bank’s incapacity to adequately assess and respond to abruptly changing operating conditions for its unique business model.