What happened
Shares of Silvergate Capital (SI +50.94%) plummeted 51.7% in November, according to data from S&P Global Market Intelligence, as the crypto bank collapsed under the weight of the FTX scandal that saw the cryptocurrency exchange file for bankruptcy.
Investors have begun to fear a bank run at Silvergate, or what will happen when customers rush to withdraw their deposits because they believe the bank might go under. Silvergate has said its exposure to FTX is minimal, around 10% of its $11.9 billion in deposits. But $1 billion or so is still a lot of money for the bank, and the current investor anxiety could precipitate others wanting to get their funds out.
Silvergate is also facing potential class action lawsuits surrounding its involvement with the alleged fraud at FTX and whether its principals were involved in facilitating it.
Image source: Getty Images.
So what
Fear of a domino effect hangs over the crypto world right now, and it grew after crypto lender BlockFi declared bankruptcy following FTX's collapse. Silvergate has said its exposure there is minimal as well, or less than $20 million.
One of those dominoes could be Silvergate's Bitcoin-collateralized loans, such as its $205 million loan to MicroStrategy and its CEO, Michael Saylor. Bitcoin's price is down 20% since this all began unraveling, and if it continues to slide, borrowers might not be able to make the payments on the loans.
OTC: SI
Key Data Points
In its last quarterly earnings statement, Silvergate reported it had almost $1.4 billion in outstanding loans on its balance sheet. At the same time, it posted almost $400 million in losses on loan sales -- though no Bitcoin-collateralized loans have suffered any losses or forced liquidations -- while its cash position plummeted from $5.1 billion at the end of last year to $1.9 billion today.
Now what
The cryptocurrency market is in turmoil, but Silvergate maintains that it is not in trouble. It says it is well capitalized and, as a regulated bank, is fully compliant with all regulations.
CEO Alan Lane stated, "Silvergate's platform was built to support our clients during times of market volatility and transformation, and the [Silvergate Exchange Network] has continued to operate as designed and without interruption."
