Silvergate shuts down Exchange Network and gives BlockFi $9.9 million.

by Mar 5, 2023CryptoNews0 comments

The bank is ending its cryptocurrency payment network, citing a risk-based judgment as the reason for the move. The cryptocurrency bank Silvergate stated on March 3 that it is ending its network for exchanging digital assets, citing a “risk-based decision” as the reason for the decision. The action was taken after concerns about a probable bankruptcy caused the bank’s shares to drop almost 59% in the previous five days.

On Silvergate’s website, a disclaimer read:

“Effective immediately Silvergate Bank has made a risk-based decision to discontinue the Silvergate Exchange Network (SEN). All other deposit-related services remain operational.” 

“Effective immediately, Silvergate Bank has decided to stop operating the Silvergate Exchange Network based on risk” (SEN). Other deposit-related services are still available in total.

Silvergate Must Repay

In a second ruling that same day, United States Judge Michael B. Kaplan ordered Silvergate to repay the $9,850,000 that BlockFi had deposited. According to documents published on the website of BlockFi’s restructuring counselor, the bank was instructed by the court to transfer the cash immediately after the two firms reached a deal in November 2022.

One of the cryptocurrency businesses impacted by the FTX collapse last year is BlockFi, along with Silvergate. The crypto bank experienced liquidity problems due to the weak market in cryptocurrencies before being struck by substantial withdrawals in the fourth quarter of 2022, which resulted in a $1 billion net loss.

Silvergate reportedly borrowed $3.6 billion from the U.S. to lessen the consequences of a withdrawal spike. Federal Home Loan Banks System (FHLB) is a network of 11 local banks operating in different parts of the country that lend money to other financial institutions.

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Silvergate

The digital asset bank described the significant deposit losses and the measures used to maintain cash liquidity in a report released by the U.S. Securities and Exchange Commission (SEC). These measures included wholesale funding and the issuance of debt instruments. Due to its interactions with FTX and Alameda Research, the cryptocurrency bank is being sued in class action lawsuits.

Since Silvergate postponed submitting its annual 10K financial report, concerns that a liquidity issue would lead to bankruptcy protection increased this week.

Conclusion

Within 24 hours after the revelation, cryptocurrency companies Coinbase, Circle, Bitstamp, Galaxy Digital, and Paxos declared that they would curtail their collaborations with the bank in some way. Like other companies, MicroStrategy and Tether have openly denied having any significant exposure to the bank.

With approximately 72.5% of its shares shorted, Silvergate stock was the second-most shorted stock in the United States, according to a February Short Interest Report.

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