What happened

Investors in cryptocurrencies and related assets are used to dramatic price lurches, but the ones experienced Wednesday and Thursday by crypto bank Silvergate Capital (SI 2.50%) were extreme.

Thursday's decline was due largely to a disquieting report about activity in an account associated with a well-known crypto exchange. Investors reacted sharply, pushing the share price down to the point where it closed the session more than 22% lower.

So what

In an exclusive report published Thursday morning, Reuters reporters wrote that top crypto exchange Binance had transferred large amounts of money from a Silvergate bank account it secretly controlled. The account belonged to Binance.US, an entity theoretically independent of its larger namesake company.

According to the article, bank records show that in the first quarter of 2021, more than $400 million in total was transferred from the account to Merit Peak, a trading firm whose manager is Binance CEO Changpeng Zhao. Flows from the account to Merit Peak began in late 2020, the article revealed, citing company messages.

Binance.US's terms of use at the time stated that its clients' U.S. dollar deposits were held by Silvergate and Prime Trust LLC, a custodian firm based in Nevada. 

Reuters said that it could not ascertain why the transfers were made, or if any of the funds technically belonged to Binance.US clients.

The article quoted Binance.US spokesperson Kimberly Soward as saying in a statement that the report was based on "outdated information." She did not elaborate. She added that only Binance.US employees have access to its bank accounts, and that "Merit Peak is neither trading nor providing any kind of services on the Binance.US platform."

Now what

The crypto world just can't seem to avoid controversies and scandals. That's a shame because blockchain technology and -- to a lesser extent, the tokens that propel many of its applications -- have many real-world uses. Hopefully for Binance.US's clients and Silvergate, the situation Reuters reported on isn't as improper as it seems to be at first blush.