Heavy hitters in the cryptocurrency industry like Coinbase Global Inc and Galaxy Digital ditched Silvergate Capital Corp as its banking partner on Thursday after the lender’s most recent filing cast doubt on its capacity to continue operating.
Coinbase and Galaxy Digital both claimed to have little exposure to Silvergate, which has been caught up in a bank run problem following the bankruptcy of the important cryptocurrency exchange FTX in November, which alarmed investors.
Silvergate, one of the most significant banks in the digital asset sector, is situated in La Jolla, California, and has come under fire from American lawmakers for its interactions with FTX and Alameda.
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 news, Silvergate’s shares fell to a record low of $6.80, wiping out more than $200 million of its market capitalization.
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.
A Deeper Look at What’s Behind the Rapid Drop in Silvergate’s Stock
Investors are closely monitoring Silvergate Capital Corp., the leading bank in the cryptocurrency ecosystem, whose stock is currently in a severe and rapid decline. In addition to losing 2.773% on Wednesday, it lost another 30% or so in today’s pre-market trading.
The possible reasons for the drop could be due to the bearish sentiment in the cryptocurrency market; Bitcoin, other altcoins like Ethereum, Litecoin, and Ripple, and the company’s recent earnings.
While Silvergate reported significantly higher revenues and profits than expected in its February 2021 earnings release, its stock did witness much of an increase as a result. This may have led some investors to take their money out of the company due to fear that it wasn’t performing as well as other cryptocurrency-related companies.
Silvergate’s stock could be affected by the ongoing speculation around an SEC investigation into its activities. What appears to be another potential bank run, similar to the one that forced the bankrupt cryptocurrency trading business FTX Derivatives Exchange into a severe liquidity crisis last November. The company has yet to address these allegations, and so far, no update has been given on the status of this investigation or what it might mean for Silvergate’s future.
The California-based bank business model relies heavily on the cryptocurrency market, so any significant changes in the industry could have a large impact on its profits and share price. In addition, the bank recently announced they were reducing its dividend payments to shareholders by almost 50%.
The steep decline in the bank’s Capital Corp.’s stock may be a sign of larger problems in the cryptocurrency market, but until more information is revealed, it is impossible to know for sure what the cause of the drop is. And what impact it brings.
