Crypto Bank Silvergate Says BlockFi Exposure Limited to $20M

Crypto bank Silvergate says its exposure to BlockFi amounts to less than $20 million in customer deposits — a move to quell concerns over exposure to the now-bankrupt lender.

Those funds would represent less than 2% of all crypto customer deposits maintained by Silvergate, which totaled $11.9 billion at the end of September (including FTX-related funds).

In a Monday statement, Silvergate also emphasized that BlockFi was not a custodian for its bitcoin-collateralized loans, nor did it hold any investments in the company.

Silvergate’s SEN Leverage loans allow customers to open US dollar credit lines backed by bitcoin held at crypto exchanges in the bank’s network.

Silvergate issued one such loan worth $205 million to business intelligence firm MicroStrategy in March, then led by bitcoin bull Michael Saylor, who pledged to use the cash to buy more BTC. To date, all loans continue to perform as expected with zero losses and no forced liquidations, Silvergate said. 

Silvergate acts as a custodian for major players across the crypto space, many of which utilize its Silvergate Exchange Network (SEN) payment rails. SEN allows partner companies, including Kraken and Circle, to wire fiat money quickly around the clock, even at times when the US’ Automated Clearing House is offline. 

Silvergate also serviced accounts for Alameda in FTX’s stead right up until its demise, a move which has since drawn criticism.

Further mitigating BlockFi exposure, Silvergate said it maintains a first-priority lien and security interest in a $10 million cash collateral account. The money was meant to assure ACH settlement with BlockFi, and it now gives the bank breathing room should its $20 million exposure solidify.

BlockFi — which had relied on a $400 million rescue deal from FTX earlier this year — filed Chapter 11 bankruptcy protection on Monday, two weeks after suspending withdrawals in light of FTX’s collapse. 

BlockFi had kept customer funds on the exchange as it went dark, exacerbating a liquidity crisis already strained by bad loans to FTX sister unit Alameda Research. 

The Jersey City firm will focus on recovering all obligations it’s owed, Blockworks was told on Monday. BlockFi has around 100,000 creditors.

Silvergate stock bit by bear long before BlockFi bankruptcy

Silvergate previously disclosed maintaining up to $1.19 billion in deposits belonging to crypto exchange FTX as it went dark, money now apparently tied up in bankruptcy proceedings. 

FTX’s funds represented about 10% of Silvergate’s total deposits. As such, Silvergate has since been working to downplay its exposure to embattled crypto counterparties while assuring its reserves are liquid enough to process sudden withdrawals — hence its statement about BlockFi. 

Blockworks has reached out to Silvergate to clarify the status of its $20 million deposits tied to BlockFi.

Institutional trading platform FalconX paused settlement via Silvergate out of an abundance of caution earlier this month. FalconX reinstated the functionality a few days later.

“As the digital asset industry continues to transform, I want to reiterate that Silvergate’s platform was purpose-built to manage stress and volatility,” said Alan Lane, CEO at Silvergate, in a statement.

“The SEN continues to operate as designed, and our support teams are available 24 hours a day, 7 days a week to help our customers during this period of adversity.”

Silvergate stock, which has halved in the past month, is down about 85% year to date, from $148 to just over $25, tracking other major crypto stocks including crypto exchange Coinbase and bitcoin miners Marathon, Riot Blockchain and Hut 8.

David Canellis contributed reporting.

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