Crypto industry distances itself from Silvergate as bank collapses


On Thursday several crypto firms made statements meant to distance themselves from crypto-friendly bank Silvergate, which saw shares free fall on Thursday after the company delayed its annual report and said it would report further losses.

Coinbase, Paxos, Galaxy Digital, Gemini, BitStamp, and Circle each issued statements saying they have cut ties with a once crucial partner linking them to the traditional bank system.

This distancing from the crypto industry adds another business challenge for Silvergate, which gave notice late Wednesday it won’t meet a March 16 extension to file its annual report and cast doubt on its ability to continue as a going concern over the next 12 months.

Shares of the company were down as much as 56% in afternoon trade on Thursday.

“Coinbase has de minimis corporate exposure to Silvergate,” the company said. Coinbase added that “out of an abundance of caution” it is no longer accepting or initiating payments to or from Silvergate.

New York-based crypto trust and stablecoin issuer Paxos also announced it was cutting ties with Silvergate. Paxos said it had discontinued transfers from its Silvergate account and does not have material exposure to the bank. “We leverage a diverse network of banking partners,” Paxos said.

Galaxy Digital is also halting banking transactions with Silvergate “out of an abundance of caution.” It added in a statement shared with Yahoo Finance the company has no material exposure either and is committed to helping clients navigate the “ever-changing” crypto market.

Gemini said it has “zero customer funds and zero GUSD [stablecoin] with Silvergate” and it has stopped processing transactions through Silvergate.

U.K.-headquartered exchange BitStamp said it is no longer working with Silvergate, but said customers using the bank to transfer fund to an account on their platform may still face losses.

“If you do choose to deposit funds into this account, you do so at your own risk,” the company said.

“We maintain relationships with several banking partners. We are sensitive to the concerns around Silvergate and are in the process of unwinding certain services with them and notifying customers,” said stablecoin issuer, Circle. “Otherwise, all Circle services, including USDC are operating as normal,” it added.

The government of El Salvador’s Chivo wallet also counts Silvergate as a key financial partner.

Slivergate CEO Alan Lane, second from right, is applauded as he rings the New York Stock Exchange opening bell before his bank’s IPO begins trading, Thursday, Nov. 7, 2019. (AP Photo/Richard Drew)

In a filing with the SEC on Wednesday, Silvergate said recent changes have altered the timing and results of its annual report. Citing both financial and regulatory challenges, the company said it is assessing how much those changes might affect its “ability to continue as a going concern for the twelve months following the issuance of these financial statements.”

Silvergate said it has also sold additional debt securities to repay interest for approximately $4.3 billion in loans taken with the Federal Home Loan Bank of San Francisco. It also cited ongoing regulatory investigations, private litigation, and ongoing inquiries from lawmakers as potential risks for the business going forward.

According to data analytics company S3 Partners, 82% of Silvergate’s total float is estimated to be sold short, making it the most shorted U.S. stock by amount of the float sold short. Shares of Silvergate have lost more about 95% of their value over the last year.

Elsewhere, crypto exchange Kraken said it would limit transactions with Signature (SBNY), another U.S. bank that caters to crypto businesses, as Bloomberg first reported Wednesday. The move has been attributed to Signature’s previous decision in early December to reduce its business with crypto-related firms.

“Kraken maintains a number of different funding methods to ensure clients can always deposit and withdraw from their account. Consumers still have access to a range of payment methods through our other partners. Clients can reach out to the client engagement team to determine which options are available to them,” a spokesperson for Kraken shared in a statement.

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