Silvergate’s deepening crisis jolts crypto stocks

Shares of Silvergate Capital Corp (SI.N) fell 10 per cent in early trading on Monday after the bank suspended its crypto payments network and expressed doubts over the viability of its business.

The crypto-focused bank said late on Friday that it had made a “risk-based decision” to discontinue the Silvergate Exchange Network (SEN) effective immediately.

“The SEN is Silvergate’s main flagship product that previously was the key attraction for depositors to bring funds to the bank,” said analysts at Wedbush.

The discontinuation could signal that Silvergate may consider winding down its operations, they added.

Shares of crypto lending peer Signature Bank (SBNY.O) also fell roughly 2.5 per cent in morning trade, while crypto exchange Coinbase Global (COIN.O) was down nearly 1 per cent. Crypto firm Riot Platforms Inc (RIOT.O), and BTC mining machine makers Ebang International and Canaan Inc (CAN.O) drop between 1 per cent and 2 per cent.

“The crypto market reacted to the negative news from Silvergate Bank, with both bitcoin and ethereum down about 4.8 per cent for the week,” analysts at brokerage Bernstein said.

Shares of Silvergate hit a record low of $4.86 on Friday, shedding nearly 98 per cent of their value since an all-time high close in November 2021 and wiping out more than $7 billion from the company’s market capitalization.

“We believe a receivership/liquidation scenario is a distinct possibility and arrive at a liquidation value of $5 per share,” Wedbush analysts said. The estimated price marks a roughly 13 per cent downside to the stock’s previous close.

A slew of crypto heavyweights including Coinbase Global have dropped Silvergate as their banking partner.

The firm has been struggling to stay afloat after the collapse of Sam Bankman-Fried’s crypto exchange FTX in November drove investors to pull out $8 billion in deposits from the bank in the last three months of the year.

Silvergate reported a net loss of $1 billion in the fourth quarter.