Sam Cooling
Only 4 months after the collapse of FTX sent shockwaves through the market, the crypto sector is once again on edge – as top crypto-friendly bank Silvergate is on verge of collapse.
Silvergate Capital Corp are the provider responsible for major crypto banking infrastructure, including the SEN Network – which is used to transfer money between crypto firms.
With some of the biggest players in the industry customers at the bank, markets have been engulfed by fear and uncertainty.
Last year, Silvergate was hit with a crisis after a run on deposits was triggered by the FTX collapse.
And things took a turn for the worst this Wednesday, as the bank revealed it has been forced to sell more debt holdings at a loss.
This leaves the bank reviewing the viability of an uncertain future, according to a statement released by Silvergate CEO Alan Lane.
With regulators hammering on the industry’s doors, this couldn’t have come at a worse time for Silvergate – which was recently put under investigation by the US Justice Department.
The statement on Wednesday further revealed the bank will be delaying the filing of its vital 10-k annual report, suggesting that the picture could be far uglier than it currently appears.
Panic Engulfs Markets In the Wake Of Silvergate News
As such a key infrastructure provider for the industry, panic has gripped markets and shares in Silvergate plummeted 58% on Thursday.
Worse still, FUD has spilled over into crypto markets – with Bitcoin (BTC) and Ethereum (ETH) tumbling 5% in the wake of the news.
On-chain data suggests this could have been the result of a huge movement in USDC (rumored to be a potential Coinbase wallet).
A mysterious fund withdrew $312m USDC from stablecoin operator Circle just one hour after it was announced that Coinbase, among others, would be suspending operational usage of Silvergate infrastructure.
This was moved onto exchanges ahead of the massive -5% dump in price action, with an additional $10m in USDC moved onto exchanges in the aftermath of the movement.
2/ #Coinbase tweeted that it would no longer accept or initiate payments with #Silvergate 14 hrs ago.
13 hrs ago, the fund started to withdraw $USDC from #Circle and transfer to exchanges, then stop 5 hrs ago.
The price of $ETH has increased by 2% during this period. pic.twitter.com/PsUeJBGBRX
— Lookonchain (@lookonchain) March 3, 2023
4/ In the past 4 hours, $210M in assets were liquidated as the crypto market plummeted.
Does this have something to do with this fund? pic.twitter.com/sdi018NZgX
— Lookonchain (@lookonchain) March 3, 2023
Crypto Firms Race To Suspend Silvergate Operations
Industry players rushed to suspend usage of Silvergate’s SEN payment network following the shock news.
Michael Novogratz’ Galaxy Digital and stablecoin issuer Paxos Trust joined Coinbase to announce that they would not be accepting or initiating further payments through Silvergate.
This sentiment was later reflected by similar announcements from Gemini Trust and Crypto.com.
Circle Internet Financial LTD – USDC’s issuance firm – said they will be unwinding some services at Silvergate.
Kraken maintains a diverse set of banking partners and cash management practices to ensure clients can always deposit and withdraw from their accounts.
We are actively monitoring concerns around Silvergate. Learn about our available funding options: https://t.co/LZbbcLZBZq
— Kraken Exchange (@krakenfx) March 3, 2023
Kraken, which maintains a more diverse set of banks, took a different approach, revealing it was simply monitoring developments.
With such exposure for many centralized industry players, the crypto community will be questioning whether the industry really learned anything from the FTX saga.
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This article was written for Business 2 Community by Sam Cooling.
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