The bank is discontinuing its crypto payment network, claiming the termination is a risk-based decision.
Crypto bank Silvergate announced on March 3 that it is discontinuing its digital assets’ payment network, claiming the termination is a “risk-based decision”. The move comes after the bank’s stock fell over 59% in the past five days due to fears of a potential bankruptcy.
A disclaimer on Silvergate’s website stated:
“Effective immediately Silvergate Bank has made a risk-based decision to discontinue the Silvergate Exchange Network (SEN). All other deposit-related services remain operational.”
A second decision on the same day from United States Judge Michael B. Kaplan said Silvergate had to return $9,850,000 deposited by BlockFi. As per documents posted on the website of BlockFi’s restructuring advisor, the court ordered the bank to immediately release the funds following an agreement between the two companies in November 2022.
BlockFi is one of the crypto firms affected by the FTX collapse last year, as is Silvergate. The crypto bank had liquidity issues due to the crypto bear market before being hit by significant outflows in the fourth quarter of 2022, leading to a $1 billion net loss.
In an effort to mitigate the effects of a surge in withdrawals, Silvergate reportedly borrowed $3.6 billion from the U.S. Federal Home Loan Banks System (FHLB), a consortium of 11 regional banks across the United States that provide funds to other banks and lenders.
In a report published by the U. S. Securities and Exchange Commission (SEC), the digital asset bank highlighted the heavy outflows of deposits and outlined steps taken to maintain cash liquidity, including wholesale funding and selling debt securities. The crypto bank is facing class-action lawsuits over its relationship with FTX and Alameda Research.
Fears that a liquidity crisis could result in bankruptcy protection spiked this week, after Silvergate postponed the filing of its annual 10K financial report. Within 24 hours after the announcement, crypto firms Coinbase, Circle, Bitstamp, Galaxy Digital and Paxos announced that they will scale back their partnerships with the bank in some capacity. MicroStrategy and Tether joined a number of firms publicly denying any meaningful exposure to the bank.
According to a Short Interest Reporting from February, Silvergate stock was the second-most-shorted stock in the United States, with over 72.5% of its shares shorted, Cointelegraph reported.
Silvergate did not immediately respond to Cointelegraph request for comment.