Silvergate Capital Shares Pressured by FTX Debacle
The price of Silvergate stock has dropped significantly, but how bad will it get?
BLOCKWORKS EXCLUSIVE ART BY AXEL RANGEL
Count Silvergate Capital among the publicly-traded crypto names hit by plunging stock prices triggered by this week’s sudden market downturn.
Silvergate, a digital assets-focused, registered US bank, has drawn the attention of Wall Street analysts, parsing the level of exposure the company had to the digital assets meltdown precipitated by FTX and Alameda Research.
In a strained liquidity environment, financial services firms can be hard pressed to handle mounting withdrawal requests, as was the case with FTX.
FTX is a Silvergate customer and the bank prominently displays a quote from FTX CEO Sam Bankman-Fried on the home page of its Silvergate Exchange Network (SEN), in which he calls the bank “one of the key backbones of the cryptocurrency settlement layer.”
The bank offers institutional investors bitcoin-backed lending and says it maintains loan-to-value, or collateralization, levels, plus ample cash and short-dated securities like US Treasurys on hand, to permit its customers to cash out at any time.
Even so, Silvergate’s stock plunged 23% Tuesday — and by almost 85% in the past year.
Although customers have been able to make deposits and withdrawals without interruption, industry participants have posited the potential for a shift if market conditions worsen.
John Popeo, a financial services regulation adviser, said “an uncomfortable topic for both crypto firms and traditional finance firms such as banks is the intersection of crypto and tradfi, and I think we’re going to have a lot more of those conversations as we move forward.”
One source familiar with the matter said Silvergate’s balance sheet is “built” so they “don’t end up in a situation like some of the crypto industry players out there, where they have a liquidity crunch.”
Silvergate CEO Alan Lane said in a statement that the regulated entity uses its balance sheet to “provide liquidity for our clients while maintaining a strong capital position in excess of the well-capitalized status required by federal banking regulations.”
The source said Silivergate has a “highly liquid balance sheet” consisting of $1.5 billion in loans and an estimated $13.5 billion in liquid securities and cash.
Silivergate stocks closed trading at $32.68, down by $2.01 from the day before.
Michael Bodley contributed reporting.
Get the news in your inbox. Explore Blockworks newsletters:
- The Breakdown: Decoding crypto and the markets. Daily.
- 0xResearch: Alpha in your inbox. Think like an analyst.
- Empire: Crypto news and analysis to start your day.
- Forward Guidance: The intersection of crypto, macro and policy.
- The Drop: Apps, games, memes and more.
- Lightspeed: All things Solana.
- Supply Shock: Bitcoin, bitcoin, bitcoin.
