Silvergate Bank, a California-based bank specializing in serving the cryptocurrency industry, is facing a major crisis as several of its clients have severed ties with it amid regulatory scrutiny and financial troubles.
According to a report, Coinbase, Paxos, Gemini, BitStamp, and Galaxy Digital have all stopped using Silvergate’s services as of March 2. These firms were among the largest users of Silvergate’s SEN network, a proprietary platform that enables fast and secure transfers of U.S. dollars between crypto exchanges and traders.
The move comes after Silvergate disclosed in a filing with the Securities and Exchange Commission (SEC) on March 1 that it had received subpoenas from the U.S. Department of Justice (DOJ) and other regulators regarding its involvement in certain transactions and activities related to digital assets.
The bank also said it had delayed filing its 2022 annual report due to “material weaknesses” in its internal control over financial reporting.
Silvergate also admitted that it was facing a “going concern” issue, meaning that there was substantial doubt about its ability to continue as a going concern.
The bank said it had suffered significant losses in 2022 due to the collapse of FTX, one of its largest crypto customers. FTX, which was founded by billionaire Sam Bankman-Fried (SBF), was hit by multiple lawsuits and investigations over alleged market manipulation, fraud, and tax evasion.
Tension in the market
Silvergate’s woes have sent shockwaves across the crypto market, causing prices of major cryptocurrencies to plunge on March 3. Bitcoin dropped below $40,000 for the first time since January, while Ethereum fell below $2,500. Other altcoins also suffered double-digit losses.
Silvergate’s fate is uncertain as it tries to resolve its legal and financial challenges. The bank has said it is cooperating with the authorities and working to improve its internal controls. It has also sought additional funding from existing and new investors. However, some analysts have speculated that Silvergate may be forced to file for bankruptcy or sell itself to another entity.
