• Tech - News - Blockchain Technology
  • Updated: March 02, 2023

Coinbase, Galaxy Digital Stop Using Silvergate Due To Business Risks

Coinbase Global Inc. and Galaxy Digital, two leading cryptocurrency companies, terminated Silvergate Capital Corp. as its banking partner on Thursday after the lender's most recent filing raised concerns about its capacity to continue operating.

The collapse of the significant cryptocurrency exchange FTX in November alarmed investors, and Coinbase and Galaxy Digital indicated they had little exposure to Silvergate, which has since been thrown into a crisis due to a bank run.

Due to its interactions with FTX and Alameda, Silvergate, one of the most significant banks in the digital asset sector, has angered American legislators. Silvergate is situated in La Jolla, California.

Bipartisan U.S. senators wrote to Silvergate in January demanding information about the bank's risk management procedures and claiming that its due diligence procedures "failed horribly."

"This does not bode well for the whole crypto market, as Silvergate is a major player in the space," said Marcus Sotiriou, analyst at digital asset broker GlobalBlock.

"The result of this remains to be seen, but we could potentially see a contagion from crypto businesses who use Silvergate Bank being impacted," Sotiriou added.

Silvergate's partnerships with stablecoin issuers Paxos and Circle, Cboe's digital asset exchange, and European cryptocurrency exchange Bitstamp have all been terminated.

"It is now getting increasingly difficult for crypto companies to establish or sustain relationships with a U.S. bank," said Ivan Kachkovski, FX and crypto strategist at UBS.

"This could potentially mean a certain trend towards crypto offshorization, at least until more comprehensive regulatory framework is established in the U.S."

Established in 1988, Silvergate entered the cryptocurrency market in 2013.

The company recorded a loss of $1 billion for the fourth quarter and reduced employment by 40% in an effort to reduce costs after high interest rates and the bankruptcy of FTX shook the cryptocurrency markets last year.

Formerly one of Silvergate's top clients, Coinbase said that it will work with Signature Bank and other financial institutions to make it easier for institutional clients who have parked funds with the exchange to conduct cash transactions.

Following the revelation, Silvergate's shares fell to a record low of $6.80, wiping out more than $200 million of its market capitalisation.

In a statement released on Wednesday, Silvergate stated that it had postponed the release of its annual report and was assessing how these developments might affect "its capacity to continue as a going concern."

Debt securities are investments that can include bonds and notes.

"The bank to some degree has become a lightning rod victim of circumstances, given industry news flow over the last few months," Canaccord Genuity analysts wrote in a note after the disclosure.

Moreover, short sellers have started to target the bank.

According to data from analytics company S3 Partners, there may be as many as 22.6 million shares of Silvergate stock shorted, or 82% of the float, making it the most shorted stock in the United States in terms of the percentage of the float.

Related Topics

Join our Telegram platform to get news update Join Now
Lawrence Agbo
Lawrence Agbo

Lawrence is a vibrant digital journalist that loves creating SEO-focused content that drives busines...

More From this Author


zenith bank plc Financial Services

guinea insurance plc Financial Services

GUINEA INSURANCE PLC was established in 1948 when British West African Corporati...

linkage assurance plc Financial Services

Linkage Assurance Plc was incorporated 26th March 1991 and was licensed to cover...

aiico insurance plc Financial Services

AIICO Insurance Plc (NSE Ticker: “AIICO”) is an insurance, pensions ...


0 Comment(s)


See this post in...