Coinbase has announced that it is suspending all associations with SilvergateBank, opting instead to go with an association with a rival bank.
The move comes as the crypto bank faced delays in filing its 10-K filing with the Securities and Exchange Commission and a downgrade by JPMorgan.
Coinbase Suspends Ties With Silvergate Bank
Cryptocurrency exchange Coinbase has announced that the exchange will no longer accept or initiate payments from or to Silvergate Bank. The announcement, coming on the 2nd of March, 2023, comes as the bank delayed filing its annual 10-K with the Securities and Exchange Commission (SEC). Silvergate stated that it needed more time to complete the filing with the SEC. Following the delay, JPMorgan downgraded the banks’ stocks from “neutral” to “underweight.”
The move by Coinbase should come as no surprise after it emerged that Silvergate Bank disclosed in a filing with the Securities and Exchange Commission that it may have “less than well-capitalized assets and that it was “reevaluating its business.” The bank also stated that it could possibly face inquiries from regulators and the department of justice, and its ability to continue “as a going concern” may be impacted over the next year.
Silvergate’s shares were already sliding in value at the time Coinbase announced its intention to cut ties. Coinbase stated,
“At Coinbase, all client funds continue to be safe, accessible, and available. In light of recent developments and out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate.”
The exchange stressed that all funds held with it are secure.
Pressure Building On Silvergate
Against the backdrop of its filing on Wednesday, pressure is growing on Silvergate, as it also stated that it would have to repay Federal Home Loan Bank loans it had taken out last year. The bank stated in its filing,
“Subsequent to the 31st of December, 2022, a number of circumstances have occurred which will negatively impact the timing and the unaudited results previously reported in the Earnings Release, including the sale of additional investment securities beyond what was previously anticipated and disclosed in the Earnings Release primarily to repay in full the Company’s outstanding advances from the Federal Home Loan Bank of San Francisco.”
The announcement by Coinbase and the JPMorgan downgrade comes as reports have also emerged that crypto derivatives platform Ledgerx has already informed customers that it is not working with Silvergate. According to the alleged email sent out by Ledgerx, all subsequent wire transfers will now be conducted through Signature Bank. Ledgerx was part of the FTX group of companies and is one of the subsidiaries that are part of the bankruptcy proceedings against the exchange.
Silvergate’s downward spiral began with the collapse of FTX, following which the United States Department of Justice announced an investigation into the bank’s role in the FTX collapse. With the ongoing investigation and the collapse of several partnerships, Silvergate is among the most shorted stocks in the market. According to data from the Financial Industry Regulatory Authority, short positions represented over 72% of Silvergate Capital Stock.
Others Firms Also Quit Silvergate
Several other companies in the crypto ecosystem have also announced that they would be suspending associations with Silvergate. These include the already mentioned Coinbase, along with Paxos, Circle, Crypto.com, Bitstamp, Galaxy Digital, Cboe Digital Markets, and Gemini. All the companies have announced that they will be suspending Automated Clearing House (ACH) transfers and other associated operations with the bank. So far, Kraken seems to be the only major player that is continuing to use Silvergate.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
