The lights are dimming on Silvergate Bank, leaving crypto companies and investors worried about its future. This week the bank warned about its financial viability, cut off its SEN platform that universities and businesses used to move money to crypto exchanges and declined to comment on its situation. On top of that, nearly 60% of its stock price tumbled after investigations by the U.S. Department of Justice and regulators left some of its major clients, including Coinbase, Gemini and Binance US, to look elsewhere.
Crypto-friendly Silvergate Bank has been a go-to bank for crypto firms in the U.S., connecting exchanges and their rising popularity with money. The SEN platform the bank used to connect its customers was a big help, providing reliable, 24/7- instant settlement services to conduct transactions at any time. But that platform is now discontinued, leaving those businesses to look elsewhere.
Adding to its woes is a 68% drawdown of its deposits in January due to pressure from the collapse of one of its clients, FTX. Silvergate bank officials then disclosed that it was facing investigations from banking regulators and the Department of Justice. A number of prominent crypto clients of Silvergate have since bailed on the bank and investors have started placing bets against Silvergate, leading to 71% of its shares being shorted.
The pressure has proved too much for Silvergate and its future remains uncertain. Its lack of timely disclosure on financial performance and its share price drop have forced a number of businesses to distance themselves from the bank, including crypto hedge fund Digital Asset Capital Management (DACM).
“We were surprised by the short notice that Silvergate gave and we were looking for an alternate banking partner in Switzerland,” said DACM co-founder Richard Galvin.
Galvin added that although certain banks in the United States can handle crypto transactions, they’re not as crypto-focused as Silvergate, particularly in the absence of clear regulations around the market. DACM and other companies in search of a partner have started looking at Swiss banking institutions, such as the fully-regulated SEBA Bank AG that secured a banking and securities dealer license back in August 2019.
While some crypto companies are turning to Signature Bank, it is a vulnerable option considering its intention to withdraw up to $10 billion from crypto customers in January 2022. In December it had already cut off its services to crypto exchange Binance, leaving crypto customers without many options for transferring money.
The future of Silvergate Bank is uncertain, but it is clear that the significant restrictions and lack of an apparent solution means that crypto companies are left without their primary banking partner. The suddenness of the situation means a scramble for alternatives and the U.S banking sector not up to par. For the time being, it looks like Swiss banks may be able to answer crypto businesses’ prayers.