Silvergate’s planned liquidation fuels another crypto rout

(Reuters) – Silvergate Capital Corp, one of the biggest banks in the cryptocurrency industry, said on Wednesday it was planning to wind down operations and liquidate voluntarily.

MARKET REACTION:

Shares of crypto-related companies fell on Thursday, as the bank’s collapse sparked a crisis of confidence in the industry.

Silvergate shares were down 26% while peer Signature Bank and former Silvergate partner Coinbase Global Inc fell 8% each.

COMMENTS:

MARCUS SOTIRIOU, MARKET ANALYST AT GLOBALBLOCK

“Investors are concerned about the consequences of Silvergate’s collapse. I think this could have significant implications for crypto regulations in the U.S. and banks’ ability to deal with digital asset platforms and cryptocurrency brokerages.”

“Silvergate’s demise was not a crypto problem. It was clearly due to Silvergate not having enough cash leading to the lack of capital from the bank run.”

KONSTANTIN SHULGA, CEO AND CO-FOUNDER OF FINERY MARKETS

“Traditional banks have refused to engage with crypto companies due to a lack of clear rules, leaving a gap that was filled by a few banks willing to take the risk.”

“One of the largest of these banks was Silvergate, which positioned itself as a crypto-friendly institution. However, this concentration on one player proved to be risky.”

“It’s definitely not good for the crypto industry, and this could potentially mean a certain trend towards crypto moving outside the U.S., at least until a more comprehensive regulatory framework is established in the U.S.”

MICHAEL PERITO, MANAGING DIRECTOR AT KBW

“It’s difficult to know what the ultimate outcome and time-line of this (winding down) process will be.”

“Silvergate still has a $205 million outstanding term loan to Microstrategy as far as we are aware; while this loan was significantly over-collateralized with BTC and performing as of year-end, we don’t have insight into how, or at what value this loan could be liquidated at.”

AARON KAPLAN, CO-CEO OF PROMETHEUM INC

“In order for events like FTX and Silvergate to be avoided in the future, crypto financial intermediaries need to come into compliance with the federal securities laws. The domino effect from FTX, and the spillover now into the traditional financial system, underscores the need for there to be proper oversight of this industry.”

“This would entail licensing crypto financial intermediaries under the securities laws and oversight by the SEC, and doing this should prevent the kind of debacles that led to the bank run on Silvergate in the first place.”

RICHARD MICO, U.S. CEO AND CHIEF LEGAL OFFICER OF BANXA

“There’s clearly a regulation-by-enforcement push by federal agencies in the United States – dubbed Operation Chokepoint 2.0 – that is making it harder for crypto-focused financial institutions to operate. Indeed, this pressure is making it increasingly challenging for crypto businesses and traders to operate within the United States.”

“As a result, there will likely continue to be a significant brain and investment drain from the United States to other jurisdictions, such as Hong Kong, the UK, Europe and Dubai, which appear to be embracing this revolutionary technology.”

(Reporting by Niket Nishant and Mehnaz Yasmin in Bengaluru; Editing by Krishna Chandra Eluri)

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