Crypto bank Silvergate announced on March 3 that it will shut down its digital asset payment network, stating that the termination was a “risk-based decision”. The move comes after the bank’s shares have fallen more than 59% in the past five days on fears of a possible bankruptcy.
A disclaimer on Silvergate’s website states:
“Effective immediately Silvergate Bank has made a risk-based decision to terminate the Silvergate Exchange Network (SEN). All deposit-related services remain operational.
A second decision on the same day from United States Judge Michael B. Kaplan said Silvergate must return $9,850,000 deposited by BlockFi. According to a document posted on the website of the restructuring advisor BlockFi, the court ordered the bank to immediately release the funds after the agreement between the two companies in November 2022.
BlockFi was one of the crypto companies affected by the collapse of FTX last year, as was Silvergate. Crypto banks have liquidity issues as the crypto bear market was previously hit by significant outflows in the fourth quarter of 2022, resulting in a net loss of $1 billion.
In a report published by the US Securities and Exchange Commission (SEC), the digital asset bank highlighted the heavy outflow of deposits and the measures taken to maintain cash liquidity, including wholesale funding and the sale of debt securities. The crypto bank is facing a class action lawsuit over its relationship with FTX and Alameda Research.
In an effort to reduce the effects of the increase in withdrawals, Silvergate reportedly borrowed $3.6 billion from the US Federal Home Loan Banks System (FHLB), a consortium of 11 regional banks across the United States that provide funds to other banks and lenders.
Fears that a liquidity crunch could lead to bankruptcy protection rose this week, after Silvergate delayed filing its annual 10K financial report. Within 24 hours of the announcement, crypto companies Coinbase, Circle, Bitstamp, Galaxy Digital and Paxos announced that they would reduce their partnership with the bank in some capacity. MicroStrategy and Tether joined several companies in publicly denying significant exposure to the bank.
According to Short Interest Reporting from February, Silvergate stock is the second most shorted stock in the United States, with more than 72.5% of shares shorted, Cointelegraph reported.
Silvergate did not immediately respond to Cointelegraph’s request for comment.