News in a Glimpse:
- Silvergate Capita’s stock price skyrocketed last week after the company revealed details about its interaction and overall relationship with FTX.
- Despite the broader rally in crypto-linked stocks and the overall market, Silvergate Capital’s shares were seen to have fallen by about 7% a few days later.
- The stock of Silvergate Capital continued to fall until last Friday, with the reason being the defunct cryptocurrency exchange FTX.
- While Lane, the bank’s CEO, attempted to reassure investors that the market volatility caused by FTX’s demise would not have an impact on the crypto banker’s business.
- After Silvergate Capital’s stock dropped more than 20% in the aftermath of the FTX collapse, Wall Street analysts came out to defend it.
Silvergate Capital, the holding company for Silvergate Bank, saw a quick spike in its price last week after the company disclosed details of its interaction and overall relationship with the defunct crypto exchange — FTX.
According to the bank, FTX deposited less than 10% of the total deposits of $11.9 billion from all digital asset customers with Silvergate. Although this appears to be more than $1 billion, the bank clarified that these are simply deposits, implying that FTX is a creditor.
Furthermore, the bank clarified that it has no outstanding loans or investments, and that it does not have a custodian for any of the bank’s bitcoin-collateralized SEN Leverage loans in the defunct crypto exchange. Alan Lane, the CEO of Silvergate, has stated that the only relationship they have with FTX is limited to deposits. This claim is said to have pushed Silvergate shares up 18.8% in after-hours trading.
The Questionable Exposure
Days later, the shares of the crypto-focused bank Silvergate Capital were seen to have fallen by about 7% last Tuesday, November 15, despite the broader rally in crypto-linked stocks and the overall market. Other crypto stocks, such as Coinbase, MicroStrategy, and Marathon Digital, were seen to be up.
The positive impact of the CEO’s clarification about their exposure to FTX appears to have faded. In the midst of it all, Marc Cohodes came into the spotlight and declared that he is shorting Silvergate, citing the fact that FTX accounts for such a large portion of Silvergate’s deposit base as a major red flag. Silvergate has not responded to this claim.
The Rapid Fell
Silvergate Capital’s stock continued to fall until last Friday, with the reason pointing to the defunct cryptocurrency exchange FTX. While the bank’s CEO Lane attempted to reassure investors that the market volatility caused by FTX’s collapse would not affect the crypto banker’s business.
Furthermore, Lane stated that regardless of whether deposits are up or down, they have the liquidity and capital ratios to support the volatility. Unfortunately, his message did not appear to reassure the market, as the company’s stock price fell nearly 10% on Friday. Furthermore, Silvergate Capital’s stock has dropped 85% since last year’s crypto bull run.
Moments after Lane’s message of assurance, FalconX, a crypto prime brokerage, announced that it would no longer use Silvergate SEN Leverage in making wire transfers, citing “an abundance of caution.” Silvergate SEN Leverage reportedly allowed institutional investors to trade any asset on-platform with leverage collateralized by bitcoin or US dollars.
Many institutional and retail investors have been on edge, anticipating the effects of the third market-disrupting contagion on the crypto market and the crypto industry as a whole, FTX’s demise. The first occurred in May, when Teraa-Luna collapsed, followed by the implosion of Three Arrow Capital in June.
Cohodes, an early critic of FTX, made another remark, claiming that FTX’s deposits with Silvergate continue to constitute a sizable portion of the banker’s overall deposit base.
Analysts Backing Silvergate Bank
Wall Street analysts then came out to defend Silvergate Capital after its shares fell more than 20% in the aftermath of the FTX collapse. Silvergate is a crypto-focused bank with its own Silvergate Exchange Network, which serves as a fiat on-ramp for bitcoin markets, and FTX is one of their customers.
According to WS analysts, the current turmoil will have no long-term impact on Silvergate. While Mark Palmer, BTIG analyst, reportedly spoke with Silvergate president Ben Reynolds, who later claimed that Silvergate does not hold FTT tokens or lend against them, and that FTX’s challenges have had no direct impact on the company.
Palmer then wrote in his research note that, despite suggestions on social media that Silvergate Capital’s SEN Leverage platform may suffer losses due to its exposure to the defunct crypto exchange platform, the platform’s loans are significantly overcollateralized by bitcoin, which could be liquidated to cover those exposures if necessary.
Furthermore, Canaccord clarified that Silvergate does not own any crypto assets, allowing it to avoid additional risk from the FTX situation. Canccord analyst Joe Vafi stated that if FTX ceases operations or some customers migrate to other exchanges, Silvergate will still be able to capture that trading volume under its operational umbrella.