Microstrategy recently took to Twitter to reassure investors – and the market as a whole – who are supposed to have “minimum exposure” to Silvergate, the struggling crypto bank that has become the subject of online discourse after news of later-than-usual The 10-K filing sent shockwaves through the stock and crypto markets.
According to the tweet, the company explained to its 175,000 followers that even if Silvergate goes bankrupt, the $205 million loan by Microstrategy will not be accelerated to meet the bank’s financial needs. This, however, is not taken lightly by the market with major cryptos tumbling by 5% in the daily time frame.
We have a loan from Silvergate not until Q1 ’25. There are concerns about the SI fin. circumstances. For anyone wondering, the loan will not accelerate b/c of the SI’s insolvency or bankruptcy. Our BTC collateral is not held with SI & we have no other financial relationship with SI.
– MicroStrategy (@MicroStrategy) March 2, 2023
The Silvergate Earthquake In A Nutshell
The Silvergate debacle all started when FTX, one of the bank’s biggest partners, collapsed leaving Silvergate and the entire crypto market in a tailspin. Since then, the company has been in some sort of life-support, with Q4 earnings metrics drop substantially.
As a result, the company’s pending 10-K filing has prompted its partners to distance themselves to minimize potential losses. Industry giants like Coinbase, Circle, Paxos, Galaxy, and CBOE have recently issued statements about their respective exposures. Circle, the developer of USDC stablecoin, stated that the company “Remove certain services with them [Silvergate] and notify customers.”
Source: Silvergate 4Q22 Earnings Report
This has certainly raised concerns about another cataclysmic event for crypto with some calling the possible bankruptcy of Silvergate a “second FTX”.
Image: Getty Images
MicroStrategy: Potential Spillovers Ahead
Since the bank has been running in deficit since the $8.1 billion open the bank suffered last year, the company received a total loan $3.6 billion of the Federal Home Loan Banks system that was originally intended to support housing finance.
Silvergate is actually a regulated bank – one that has full federal protection – that simply positions itself as a gateway to the crypto market. With the company’s ties to the traditional financial space, it’s understandable that Silvergate will disrupt the financial system.
Crypto total market cap at $998 billion on the weekend chart | Chart: TradingView.com
Regulatory Response
This also means a stronger response by regulatory bodies in crypto companies. Last month, the US Department of Justice disclosed that they plan to investigate Silvergate’s relationship with the now defunct FTX exchange.
Silvergate’s fate remains unclear to this day, but the current situation sticks out like a sore thumb as the painful memories of last year are still fresh in the minds of investors.
How that might affect the future of digital assets is still open to speculation.
-Featured image from Bitcoin Wisdom