Silvergate Capital stock price fell by more than half on Thursday after the parent company of crypto lender Silvergate Bank revealed worsening financial woes. The turbulence delayed company earnings results, sent financial partners scurrying and led to questions.
Silvergate is one of the biggest lenders to major crypto firms and facilitates transfers between exchanges and market makers. Its subsidiary, Silvergate Bank, touts itself as "the leading bank for innovative businesses in fintech and cryptocurrency," according to the company website. The company operates the Silvergate Exchange Network (SEN), a platform launched in 2018 that enables investors and institutions to instantly transfer U.S. dollars from bank accounts to crypto exchanges.
On Wednesday, Silvergate Capital told the Securities and Exchange Commission it will be unable to file its 10-K report by March 16. It requested additional time for its independent accounting firm to complete certain audit procedures. The review includes unrecorded adjustments and the evaluation of Silvergate's internal controls and financial reporting.
In its preliminary financial results filed on Jan. 17, Silvergate reported a full year net loss of $948.7 million. That compared to net income of $75.5 million for fiscal 2021.
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Silvergate noted it expects to record further losses as it sold additional investment securities "beyond what was previously anticipated and disclosed." It also sold additional debt securities in January and February.
Silvergate reported the losses will negatively impact regulatory capital ratios for the company and its subsidiary Silvergate Bank. This could result in them being "less than well-capitalized."
The company is evaluating the impact the growing problems will have on its "ability to continue as a going concern for 12 months following the issuance of its financial statements. Silvergate is reevaluating its business and strategies, "in light of the business and regulatory challenges it currently faces."
A host of crypto firms began to jump ship following the Silvergate announcement. Coinbase announced Thursday it will now use Signature Bank to facilitate dollar payments, tweeting it switched "out an abundance of caution."
Stablecoin issuer Paxos discontinued Silvergate exchange transfers and wires. And Circle announced it is "in the process of unwinding certain services with them (Silvergate) and notifying customers."
Bloomberg reported that crypto financial services firm Galaxy Digital and trading platform Cboe Digital stopped accepting and initiating transfers from the bank.
Industry Impact
The news shows the challenges persisting for companies operating in the crypto community, Ric Edelman, founder of the Digital Assets Council of Financial Professionals (DACFP) wrote in an email. "These challenges are likely to continue — certainly for most of 2023 and potentially for several years — until Congress passes laws that clarify how crypto companies are permitted to operate."
In the near-term, Edelman believes banks will engage slowly, if at all, in cryptocurrencies infrastructure. For now, he said, the regulatory and reputational risks continue to outweigh revenue potential.
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"All crypto companies are concerned that they might find themselves shut out of the U.S. banking system. Without the ability to even maintain a payroll account, they wouldn't be able to operate," he said. This could lead to companies moving offshore, which would be to the "detriment of U.S. leadership, the U.S. economy and investor protection."
However, Edelman says the Silvergate news shouldn't have much price impact on bitcoin and ethereum. He noted bitcoin's price has remained "quite stable" despite the major collapses and bankruptcies in 2022. "Silvergate's situation is 'only' a U.S. concern," he said. But cryptocurrencies trade worldwide 24/7.
"The fact that U.S. investors might become concerned is dwarfed by sentiment elsewhere," Edelman said. "The only impact of the current U.S. regulatory behavior is harm to U.S. investors."
Silvergate Stock
SI stock plummeted more than 57% to $5.77 on Thursday following the news. Silvergate shares are down more than 76% over the last three months and down 65% year-to-date.
Meanwhile, Bitcoin held steady above $23,400 on Thursday following the news, fluctuating between $23,210 and $23,791 during the day. Meanwhile, Ethereum traded around $1,640 in the afternoon after climbing as high as $1,677 in the morning.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
