Instant View: Silvergate’s planned liquidation fuels another crypto rout

March 9 (Reuters) – Silvergate Capital Corp ( SI.N ), one of the largest banks in the cryptocurrency industry, said on Wednesday it plans to wind down operations and voluntarily liquidate.

MARKET REACTION:

Shares in crypto-related companies fell on Thursday, as the bank’s collapse triggered a crisis of confidence in the industry.

Silvergate shares fell 26% while peer Signature Bank ( SBNY.O ) and former Silvergate partner Coinbase Global Inc ( COIN.O ) each fell 8%.

COMMENTS:

MARCUS SOTIRIOU, MARKET ANALYST AT GLOBALBLOCK

“Investors are worried about the consequences of Silvergate’s collapse. I think this could have significant implications for crypto regulation in the US and banks’ ability to deal with digital asset platforms and cryptocurrency brokers.”

“Silvergate’s demise was not a crypto issue. It was clearly due to Silvergate not having enough cash leading to a lack of capital from the bank run.”

KONSTANTIN SHULGA, CEO and co-founder of FINERY MARKETS

“Traditional banks have refused to engage with crypto companies due to a lack of clear rules, leaving a gap that was filled by a few banks willing to take the risk.”

“One of the largest of these banks was Silvergate, which positioned itself as a crypto-friendly institution. However, this concentration on one player proved risky.”

“It’s definitely not good for the crypto industry, and this could potentially mean some trend towards crypto moving outside of the US, at least until a more comprehensive regulatory framework is established in the US.”

MICHAEL PERITO, MANAGING DIRECTOR OF KBW

“It’s hard to know what the final outcome and timeline of this (dissolution) process will be.”

“Silvergate still has an outstanding $205 million loan to Microstrategy as far as we know; while this loan was significantly over-collateralized with BTC and performed at year-end, we have no insight into how or at what value this loan may be liquidated at

AARON KAPLAN, CO-CEO OF PROMETHEUM INC

“For events like FTX and Silvergate to be avoided in the future, crypto-financial intermediaries must comply with federal securities laws. The domino effect from FTX, and spillover now into the traditional financial system, underscores the need for proper oversight of this industry.”

“This would involve licensing crypto-financial intermediaries under the securities laws and oversight by the SEC, and doing so should prevent the kind of debacles that caused the bank to run on Silvergate in the first place.”

RICHARD MICO, USA CEO AND LEGAL DRIVER OF BANXA

“There is clearly a regulation-by-enforcement push by federal agencies in the United States – dubbed Operation Chokepoint 2.0 – that is making it more difficult for crypto-focused financial institutions to operate. In fact, this push is making it increasingly challenging for crypto businesses and traders to operate in United States.”

“As a result, there is likely to continue to be a significant brain and investment drain from the US to other jurisdictions, such as Hong Kong, the UK, Europe and Dubai, which look set to embrace this revolutionary technology.”

Reporting by Niket Nishant and Mehnaz Yasmin in Bengaluru; Editing by Krishna Chandra Eluri

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