Silvergate Halts its Silvergate Exchange Network (SEN) for Crypto

Silvergate (NYSE:SI) has halted its Silvergate Exchange Network (SEN), an API service for banking customers to allow 24/7/365 real-time transfers for institutional investors active in the digital asset sector. Silvergate said it was making a “risk-based decision to discontinue the SEN,” adding that all other deposit-related services remain operational.

The decision was announced on Friday after a difficult week for the bank. The disclosure that it was unable to make the deadline to file its 10-K annual report, plus the revelation it may not be able to continue as a going concern, sent shares in Silvergate plummeting.

Silvergate’s 52-week high is over $162/share. Its 52-week low is at $4.85 – it closed on Friday at $5.77 a share, representing a profound destruction of value for the bank. Its market cap is now well under $200 million.

Silvergate was once a top federally chartered institution that provided services for the burgeoning crypto industry that needed a banking partner to conduct business. Many banks avoided crypto, while Silvergate embraced it. But 2022 was a bad year for digital assets as multiple platforms failed and crypto contagion roiled the industry. The collapse of FTX, once one of the largest crypto exchanges, pounded Silvergate. Most, or perhaps all crypto platforms, have exited their relationship with Silvergate.

The law firm of Seward and Kissel distributed an email yesterday outlining what you should expect if your bank fails, following all the news about Silvergate.

The firm explained:

“The FDIC usually acts even before a bank “fails,” and may require the bank to adopt a capitalization improvement plan. If failure appears imminent to the FDIC, it will begin its preparations and begin a search for a healthy bank willing to acquire some or all of the failing bank’s assets and liabilities– a process known as “franchise marketing.” In the case of Silvergate, we would expect that the FDIC already has “boots on the ground” analyzing the bank’s assets and liabilities and engaging in franchise marketing.”

The law firm suggested customers may want to transfer accounts to another bank while recommending that crypto firms working with Silvergate should:

  • “Establish contingency plans for the potential unavailability of the Silvergate Exchange Network which may disrupt and delay funds transfers.
  • Analyze potential future ramifications, potentially including:
    • For asset managers, losses caused by any uninsured deposits at Silvergate;
    • Increased regulatory scrutiny of other banks serving the industry causing loss of access to banking services from U.S. banks; or 
    • The future unavailability of credit from U.S. banks or less economic terms.”

While the Feds will probably take action before any bank failure, Silvergate has suffered from its innovative work with an industry that lacks sufficient regulation – at a minimum, an SRO that provides best practices.

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