Cryptobank Silvergate announced on March 3 that it is shutting down its digital asset payment network, claiming the termination is a “risk-based decision.” The move comes after shares of the bank fell more than 59% in the past five days amid fears of 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 U.S. Judge Michael B. Kaplan said that Silvergate had to pay back $9,850,000 deposited by BlockFi. According to documents posted on the website of BlockFi’s restructuring consultant, 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 companies affected by the collapse of FTX last year, just like Silvergate. The crypto bank had liquidity problems due to the crypto bear market before being hit by significant outflows in the fourth quarter of 2022, leading to a net loss of $1 billion.
In an effort to mitigate the effects of a wave of foreclosures, Silvergate reportedly borrowed $3.6 billion from the US Federal Home Loan Banks System (FHLB), a consortium of 11 regional banks in the United States that provide money to other banks and lenders.
In a report released by the U.S. Securities and Exchange Commission (SEC), the digital asset bank highlighted large deposit outflows and outlined steps taken to preserve cash liquidity, including large-scale funding and the sale of debt securities. The crypto bank is facing class action lawsuits over its relationship with FTX and Alameda Research.
Fears that a liquidity crunch could lead to bankruptcy protection increased this week after Silvergate delayed the filing of its 10,000 annual financial report. Within 24 hours of the announcement, crypto firms Coinbase, Circle, Bitstamp, Galaxy Digital, and Paxos announced that they will be scaling back their partnerships with the bank in some capacity. MicroStrategy and Tether joined a number of companies that openly denied any meaningful exposure to the bank.
According to a February Short Interest Reporting, Silvergate stock was the second most shorted stock in the United States, with more than 72.5% of its shares shorted, Cointelegraph reported.
Silvergate did not immediately respond to Cointelegraph’s request for comment.