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Major Crypto Exchanges Cut Ties with Silvergate Amid Bankruptcy Rumors

3 March 2023

On Thursday, multiple firms in the cryptocurrency industry broke ties with Silvergate after the crypto-friendly US bank deferred filing its yearly 10-K report with the US Securities and Exchange Commission (SEC).

In its official SEC filing, the bank warned that it may have misreported losses during the fourth quarter of last year. Consequently, their previously reported financial health might be inaccurate.

As a result, Silvergate’s stock price plummeted by more than half on Thursday, dropping to a low of $6.35 — representing a 93% decrease from its historic peak in November 2021 during the previous crypto boom.

In a recent tweet, Coinbase, one of the largest crypto exchanges, announced that they had decided to stop handling payments through the Silvergate bank due to “recent events and an abundance of caution.”

Crypto.com, a Singapore-based crypto exchange, also commented that funds transferred to and from its platform via the bank would be rejected. A company spokesperson stated that Silvergate deposits and withdrawals are currently halted.

Another cryptocurrency exchange Bitstmap acknowledged in a blog post that it would be temporarily suspending its use of Silvergate to facilitate US dollar bank transfers. Instead, Bitstamp will rely on Signature Bank, whose services are also widely used among crypto firms.

Digital asset exchange Gemini also has suspended customer withdrawals and deposits as well as all wire transfers facilitated through Silvergate.

Circle, the issuer of the stablecoin USDC, informed customers that it is no longer going to do business with Silvergate. In a tweet, Circle said that it was currently in the process of ending its services with the bank and notifying clients. 

Paxos, another company that issues stablecoins, announced it had ended transfers to its Silvergate account while stressing that all outgoing payments would continue being processed without interruption.

The Chief Technology Officer of Tether’s stablecoin assured investors in a tweet, saying that there was no connection between Tether and Silvergate.

As well, Cboe Clear Digital acknowledged that it was postponing all activities with Silvergate bank on Wednesday as per a declaration issued by the company. Furthermore, Mike Novogratz’s investment firm Galaxy Digital also publicly notified that they have ceased approving or initiating funds to Silvergate.

Last quarter, Silvergate experienced a large drop in its bank deposits as FTX’s bankruptcy had an immense impact. Specifically, they reported in January that 68% of the $8.1 billion vanished, significantly reducing their previously held capital.

In order to satisfy the avalanche of withdrawals it faced during that time, the crypto-friendly bank secured a $4.3 billion loan from the Federal Home Loan Bank and sold around $5.2 billion in debt securities.

There was a backlash against Silvergate from members of Congress, including Senator Elizabeth Warren, who wrote an open letter to the CEO of Silvergate. The legislators argued that Congress and the general public had a right to know about the influence of FTX’s failure on the bank.

Last month, the Department of Justice disclosed it was examining the bank’s relationship with the now-bankrupt exchange founded by disgraced crypto mogul Sam Bankman-Fried, who’s been charged with a series of financial crimes in the wake of his exchange’s implosion.

Recently, the Department of Justice revealed that the agency is investigating Silvergate’s alliance with Sam Bankman-Fried’s collapsed exchange. The now notorious crypto mogul is confronted with multiple financial charges after his endeavor fell apart.

Wall Street, including hedge fund manager George Soros’ company, has recently placed bets against Silvergate. Of all the shares of this publicly traded US company’s stock available for trading, 71% are now being sold short, a fact that has been confirmed by MarketWatch data sources.

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