MicroStrategy Claims Minimal Exposure as Crypto.com, Coinbase, and Gemini Pause Transactions with Silvergate Bank – What’s Going On?
MicroStrategy has denied any meaningful exposure to Silvergate as crypto firms who dealt with the crypto bank are rushing for the exits amid concerns about its financial condition.
In a recent tweet, business intelligence firm MicroStrategy clarified that their Bitcoin holdings, valued at $2.9 billion and comprising over 130,000 Bitcoin, are not held in custody by Silvergate and that they do not have any other financial ties with the embattled crypto bank.
The Michael Saylor-founded firm disclosed that it has a loan from Silvergate, adding that it will not need to pay back the loan until Q1 2025 and that a bankruptcy or insolvency event wouldn’t “accelerate” the loan repayment.
We have a loan from Silvergate not due until Q1 ‘25. There are mkt concerns re SI’s fin. condition. For anyone wondering, the loan wouldn’t accelerate b/c of SI insolvency or bankruptcy. Our BTC collateral isn’t custodied w/ SI & we have no other financial relationship w/ SI.
— MicroStrategy (@MicroStrategy) March 2, 2023
The news comes after Silvergate announced earlier this week that it would not be able to file its annual 10-K financial report to the SEC on time and that it is evaluating its ability to stay in business – the bank’s shares fell more than 55% Thursday following the announcement.
Silvergate is a traditional, federally insured lender that has positioned itself as a gateway to the crypto sector. It offers a 24/7 payments platform named Silvergate Exchange Network, which has reportedly processed over $1 trillion in transactions since 2017.
Silvergate was among the lenders hit hardest by the fall of FTX in November last year. As reported, Silvergate suffered a bank run following the collapse of FTX and had to sell $5.2 billion of debt securities it was holding on its balance sheet at a significant loss to cover around $8.1 billion in user withdrawals.
As a result, it incurred a $718 million loss, which reportedly exceeds the bank’s total profits since 2013. Furthermore, Silvergate had only $3.8 billion of deposits at the end of 2022, compared to $11.9 billion in 2021.
Aside from Microstrategy, Paolo Ardoino, the chief technology officer of Tether, also pointed out in a recent tweet that Tether is not exposed to Silvergate. Multiple other crypto companies, including Coinbase, Paxos, Galaxy Digital, and Kraken, have ended their relationships with the bank following its filing news on Wednesday.
Today Silvergate has lost
— db (@tier10k) March 2, 2023
Coinbase
Circle
Paxos
Galaxy
CBOE
RIP https://t.co/XlexB5u2wD
Could Troubles at Silvergate Spill into TradFi?
It is worth noting that troubles at Silvergate might spill into the mainstream banking system. That is because the bank has received at least $3.6 billion in loans from the Federal Home Loan Banks, a system originally designed to support housing finance and community investment.
Some market participants have warned that lending to crypto-exposed banks could lead to the crypto contagion spreading to traditional finance companies too.
“This is why I’ve been warning of the dangers of allowing crypto to become intertwined with the banking system,” Senator Elizabeth Warren said last month.
In early February, it was revealed that the US Department of Justice is looking into Silvergate’s relationship with now-defunct cryptocurrency exchange FTX and its trading arm Alameda Research, which includes examining the bank’s hosting of accounts tied to Sam Bankman-Fried’s businesses.
Silvergate shares are down by more than 67% year-to-date (YTD).
