John Isige
Crypto Bank Silvergate is the latest establishment to make public its financial woes despite the upturn in the market, especially in January. Based in California, Silvergate is one among a hand full of United States banks dedicated to offering tailor-made services to the crypto industry.
Silvergate’s shares performed dismally on Wednesday following a statement it would be assessing its capital position to determine if it can turn things around. The bank may be the latest victim of a liquidity crunch in the crypto market, following the collapse of Sam Bankman-Fried’s FTX exchange.
It has been established that FTX banked heavily with Silvergate and its untimely and messy exit from the market left a gap that has been challenging to fill. Besides, the recovery witnessed in January faded in February as investors adjusted to various uncertainties like the rise in inflation, and regulatory crackdowns mainly in the US.
Is It The End Of The Road Crypto-focused Bank Silvergate?
Silvergate’s regulatory filing on Wednesday revealed that the crypto bank will delay its annual report to the US Securities and Exchange Commission (SEC). The crypto bank cites a weakening capital position, experienced from January, after recording poor performance in its Q4 2022 earnings.
For now, Silvergate will concentrate on “evaluating the impact that these subsequent events have on its ability to continue as a going concern for the twelve months following the issuance of its financial statements.”
The bank’s securities portfolio is set to suffer the biggest hit, which summed up to $5.7 billion at the close of 2022. Silvergate projects losses in its capital ratios following weakening sales in the first two months of 2023.
FTX’s implosion’s impact on Silvergate is reflected by the need to sell off securities to meet customer withdrawal requests. Confidence in the crypto market has tanked immensely since November, with selected crypto platforms facing overwhelming fund outflows compared to the shrinking inflows.
Silvergate is walking on a dangerous path that could mark its fall from grace. The bank fast-tracked its success by focusing on serving investors in digital assets and crypto businesses like miners, exchanges, and custodians.
At the peak of its success, Silvergate’s share traded at $219.95 in November 2021 compared to $13.53 at the close of trading on Wednesday. That’s not all, its share price dipped by another 32% during the New York after-hours trading.
Investors are worried about what may await Silvergate, considering its capital woes only two months into the New Year. The situation in the crypto market is still worrisome against the backdrop of the FTX collapse which in addition to causing a liquidity crunch, eroded investor confidence in the market.
Silvergate has been freefalling since the $76 million profit posted in 2021, at the helm of the crypto market bull run. In 2022, the crypto-focused bank reported a whopping $946 million loss likely to translate into bigger losses in 2023.
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This article was written for Business 2 Community by John Isige.
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