Crypto Firms Retreat From Silvergate as Bank’s Viability Warning Hits Shares

Silvergate Bank’s position at the center of cryptocurrency’s dollar-payment infrastructure deteriorated sharply on March 2, 2023, as Coinbase and other digital-asset companies moved transactions away from the bank following a warning about its financial condition.

Coinbase said it was no longer accepting or initiating payments to or from Silvergate, describing the decision as a precaution taken during its regular review of counterparty risk. The exchange said its corporate exposure to Silvergate was minimal and that institutional-client cash transactions would be handled through Signature Bank and other banking partners. Contemporaneous reporting and company announcements identified Galaxy Digital, Circle and Paxos among firms also restricting Silvergate transfers.

The withdrawals mattered because Silvergate was not merely a conventional bank serving a few crypto companies. Its Silvergate Exchange Network, known as SEN, allowed participating exchanges and institutional customers to transfer U.S. dollars around the clock. Losing prominent participants threatened the network effect underpinning that service and reduced an important bridge between continuous crypto trading and the more limited operating hours of traditional bank-payment channels.

The disclosure behind the retreat

Silvergate filed a Form 12b-25 with the Securities and Exchange Commission after the market closed on March 1. The company said it could not complete its annual report for the year ended December 31, 2022 within the prescribed period and did not expect to meet the extended March 16 deadline.

The filing went beyond an administrative delay. Silvergate said it had sold additional debt securities during January and February 2023, primarily while repaying advances from the Federal Home Loan Bank of San Francisco. It expected additional impairment losses to weaken regulatory capital ratios and warned that Silvergate Capital and Silvergate Bank could become less than well-capitalized.

Management was also evaluating whether subsequent events affected the company’s ability to continue as a going concern for the 12 months following issuance of its financial statements. That was an assessment in progress, not a declaration on March 2 that the bank had failed or would liquidate. Silvergate said the unfinished audit prevented it from quantifying the changes to its previously reported results.

A balance sheet already under pressure

The warning followed a severe contraction in Silvergate’s crypto-related funding base. Its January earnings materials reported that deposits from digital-asset customers fell from $11.869 billion on September 30, 2022 to $3.830 billion on December 31, 2022. Those figures were company-reported and preliminary at the time of the March filing.

Silvergate had sold securities and used wholesale funding to meet withdrawals after confidence in centralized crypto companies collapsed during the fourth quarter of 2022. The March disclosure indicated that the balance-sheet adjustment had continued into 2023 and was producing losses beyond those included in its preliminary annual results.

The market’s event-day judgment

Silvergate Capital’s NYSE-listed common stock, then trading under the symbol SI, fell 57% during the regular March 2 session, according to Yahoo Finance’s contemporaneous market report. That measurement is a single-session common-stock move, not a cryptocurrency price or a measure of depositor losses. It showed how rapidly equity investors reassessed the bank after the late filing and customer departures, but it did not establish that either development alone caused the entire decline.

Bitcoin and ether were comparatively stable at 4 p.m. Eastern. Coinbase Institutional recorded bitcoin at $23,460, down 0.4% over 24 hours, and ether at $1,645, down 0.8%. Those Coinbase snapshots were venue-specific reference prices rather than consolidated global closes, and crypto trading continued after the measurement time.

Later context

Silvergate discontinued SEN on March 3 and announced on March 8 that it intended to wind down Silvergate Bank voluntarily. Those later actions clarify the seriousness of the March 2 warning, but they were not known outcomes when customers began retreating and SI shares fell on March 2.