Silvergate shares fall 55% as financial troubles slow earnings

Silvergate capital (SI) stock price fell more than half on Thursday after the parent company of cryptocurrency lender Silvergate Bank revealed worsening financial woes. The turbulence slowed the company’s earnings results, rushed financial partners and sparked questions.


Silvergate is one of the largest lenders to major crypto companies and facilitates transfers between exchanges and market makers. Its subsidiary, Silvergate Bank, touts itself as “the leading bank for innovative companies in fintech and cryptocurrency,” according to the company’s website. The company operates the Silvergate Exchange Network (SEN), a platform launched in 2018 that allows investors and institutions to instantly transfer US dollars from bank accounts to crypto exchanges.

On Wednesday, Silvergate Capital told the Securities and Exchange Commission it will not be able to file its 10-K report before March 16. It has asked its independent accounting firm for more time to complete certain audit procedures. The review includes unrecorded adjustments and the review of Silvergate’s internal controls and financial reporting.

In its preliminary financial results filed Jan. 17, Silvergate reported a full-year net loss of $948.7 million. That compared to a net profit of $75.5 million for fiscal 2021.

Crypto clients are jumping ship

Silvergate noted that it expects to record further losses as it sold additional investment securities “beyond what was previously expected and disclosed.” It also sold additional debt securities in January and February.

Silvergate reported that the losses will negatively impact regulatory capital ratios for the company and its subsidiary Silvergate Bank. This could lead to them being “less than well capitalized”.

The company is evaluating the impact the growing issues will have on its “ability to continue operations for 12 months following the release of its financial statements. Silvergate is reassessing its operations and strategies,” in light of the business and regulatory challenges that currently facing it.”

A large number of crypto companies started jumping after Silvergate’s announcement. Coin base (COIN) announced Thursday that it will now use signature bank (SBNY) to facilitate dollar payments, it tweeted “an abundance of caution.”

Stablecoin issuer Paxos stopped Silvergate transfers and transfers. And Circle announced that it is “working on finalizing certain services with them (Silvergate) and informing customers.”

Bloomberg reported that crypto financial services company Galaxy Digital and trading platform Cboe Digital stopped accepting and initiating transfers from the bank.

Industry impact

The news shows the ongoing challenges 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 persist – at least for most of 2023 and possibly several years – until Congress passes laws clarifying how crypto companies are allowed to operate.”

In the short term, Edelman believes that banks will be slow to engage with cryptocurrencies infrastructure, if at all. For now, he said, regulatory and reputational risks continue to outweigh revenue potential.

“All crypto companies are concerned about being locked out of the US banking system. Without the ability to even keep payroll records, they would not be able to operate,” he said. This could lead to companies moving abroad, which would be “to the detriment of US leadership, the US economy and investor protection”.

However, Edelman says the Silvergate news should not have much price impact on bitcoin and ethereum. He noted that bitcoin’s price has remained “fairly stable” despite major collapses and bankruptcies in 2022. “Silvergate’s situation is ‘just’ a US concern,” he said. But cryptocurrencies are traded 24/7 worldwide.

“The fact that US investors might be concerned is overshadowed by sentiment elsewhere,” Edelman said. “The only impact of the current US regulatory behavior is harm to US investors.”

Silvergate stock

SI shares plummeted more than 57% to $5.77 on Thursday following the news. Silvergate shares are down more than 76% in the past three months and 65% since the start of the year.

Meanwhile, Bitcoin held steady above $23,400 on Thursday following the news, fluctuating between $23,210 and $23,791 throughout the day. Meanwhile, Ethereum was trading around $1,640 in the afternoon after rising to $1,677 in the morning.

You can follow Harrison Miller for more stock market news and updates on Twitter @IBD_Harrison


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