Silvergate Capital, a dominant lender to cryptocurrency firms, is spiraling.
The bank’s shares fell more than 40% after it told the Securities and Exchange Commission in filing Wednesday night that it won’t be able to file its annual report on time and that it is evaluating its ability to stay in business.
Silvergate told the SEC it was “analyzing certain regulatory and other inquiries and investigations that are pending.”
The bank’s stock is down 54% this year.
In response to the crisis at the bank, several firms including Coinbase, the largest US crypto exchange, severed ties with Silvergate.
“Out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate,” the exchange tweeted Thursday.
Paxos, a blockchain infrastructure firm, said it had “discontinued all [Silvergate Exchange Network] transfers and wires to our Silvergate account,” noting that it “does not have any material exposure to Silvergate.”
Galaxy Digital, a crypto financial services comapny, issued a similar statement.
The La Jolla, Califorina-based bank reported a $1 billion loss for the fourth quarter as investors panicked over the collapse of FTX, the exchange founded by Sam Bankman-Fried that is now at the center of a massive federal fraud investigation.
FTX’s collapse in November rippled through the digital asset sector, forcing several firms to halt operations and even declare bankruptcy as liquidity dried up and investors fled.
But unlike FTX, BlockFi, Celsius, Voyager and other crypto companies that folded last year, Silvergate is a traditional, federally insured lender that has positioned itself as a gateway to the crypto sector.
It’s among the first major instances of crypto’s volatility spilling into the mainstream banking system — a scenario regulators and crypto skeptics have long feared.
“All in all, the crisis at Silvergate is nasty, another victim that could not handle the crypto boom,” said Julius de Kempenaer, senior technical analyst at StockCharts.com. “But the impact on the market seems limited for now.”
Bitcoin and Ether, the two most popular digital assets, were relatively stable in response to the crisis at Silvergate, de Kempenaer noted.
“At the moment, regular financial institutions seem untouched by this new crypto failure, and at this stage it seems unlikely that they would get hurt.”