Coinbase ends relationship with crypto bank Silvergate
Brian Armstrong, Chairman and CEO of Coinbase. Victor J. Blue—Getty Images
For years, California-based Silvergate Bank has served as a financial backbone to the crypto industry as traditional institutions stayed away from the volatile sector.
After severe losses due to the collapse of FTX and the broader bear market, Silvergate’s crypto venture may be coming to an end as the bank loses key clients and faces federal investigations.
On Wednesday, Silvergate sent a notice to the US Securities and Exchange Commission that it would not be able to deliver its annual report on time, citing regulatory and financial uncertainty. The stock opened Thursday down more than 45 percent.
“The company is assessing the impact that these subsequent events have on its ability to continue as a going concern,” Silvergate wrote in the filing, adding that it is reevaluating its businesses and strategies.
This comes less than two months after the bank reported a net loss of $1 billion for the fourth quarter of 2022, even as CEO Alan Lane insisted the company’s “mission has not changed.”
Silvergate was founded in 1988 as a savings and loan association, but transitioned to serving the digital asset industry as crypto rose in popularity. The move was lucrative during crypto’s bull market, as Silvergate’s share price grew more than 1,500% between November 2019 and November 2021.
Crypto came to dominate the business. In September 2022, 90% of the deposit base came from crypto firms. As of mid-January, Silvergate served more than 1,500 digital currency and financial technology companies.
One of its main customers was FTX, whose collapse in November sent shockwaves through the ecosystem – and Silvergate’s business model. The bank drew criticism from lawmakers, including Sen. Elizabeth Warren (D-Mass.), who wrote a December letter with two other senators seeking information related to the relationship between Silvergate and Sam Bankman-Fried’s fallen empire.
Even as Silvergate posted huge losses and its share price plummeted, Lane maintained that Silvergate would continue down the crypto path. The SEC filing on Wednesday appears to change that direction.
Silvergate announced it had sold investments and debt securities in January and February 2023 to repay a controversial $4.3 billion loan late last year from the Federal Home Loan Bank of San Francisco — a source of consternation from senators — and revealed that it stood facing investigation by the banking system. regulators and the US Department of Justice.
On Thursday morning, Coinbase announced that it would no longer accept or initiate payments to or from Silvergate, adding that it has no “de minimis” or significant corporate exposure to Silvergate. Coinbase cited “recent developments” and an “abundance of caution” for the decision.
At Coinbase, all client funds continue to be safe, accessible and accessible.
In light of recent developments and out of an abundance of caution, Coinbase no longer accepts or initiates payments to or from Silvergate.
— Coinbase (@coinbase) March 2, 2023
Silvergate did not immediately respond to a request for comment.
Other crypto companies working with Silvergate also distanced themselves from the company. In a statement shared with Fortune, a Paxos spokesperson said: “Paxos has no significant exposure to Silvergate. Paxos’ priority has always been the protection of clients’ funds and assets, and as such we leverage a diverse network of banking partners.” The statement did not clarify whether Paxos would also end its relationship with the bank.
With Silvergate questioning its viability going forward, the crypto industry is on the verge of losing a crucial financial partner. Adam Cochrane, partner in the venture capital firm CEHV, tweeted that Silvergate was the key to crypto exchanges and market makers.
“Silvergate’s death spiral is going to be difficult for crypto,” he said.
Coinbase announced it would move to Signature, another crypto-friendly bank, although it also faces financial uncertainty, with Q4 2022 deposits falling 13.8%, thanks in large part to the planned reduction in digital asset partners.
On Wednesday, Bloomberg reported that crypto exchange Kraken would withdraw from Signature for some financial transactions due to new guidance from the bank that it would no longer support crypto exchange customers buying and selling amounts of less than $100,000.
